SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File number 0-7617
UNIVEST CORPORATION OF PENNSYLVANIA
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1886144
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
14 North Main Street 18964
Souderton, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (215) 721-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5 par value
(Title of Class) 7,327,554
(Number of shares outstanding
at 2/28/99)
The approximate aggregate market value of voting stock held by non
affiliates of the registrant is $194,274,685 as of February 28,1999.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. ( )
Parts I and Part III incorporate information by reference from the proxy
statement for the annual meeting of shareholders on April 6, 1999. Parts I, II,
and IV incorporate information by reference from the annual report to
shareholders for the year ended December 31, 1998.
PAGE 1 OF 25
<PAGE>
PART I
Item 1. Business
General
Univest Corporation of Pennsylvania ("Univest") is a Pennsylvania
corporation organized in 1973 and registered as a bank holding company pursuant
to the Bank Holding Company Act of 1956. It owns all of the capital stock of
Union National Bank and Trust Company ("Union National Bank"), Pennview Savings
Bank, Univest Realty Corporation, Univest Leasing Corporation, Univest Delaware,
Inc., Univest Financial Planning Corporation, Univest Insurance Company, and
Univest Electronic Services Corporation.
Union National Bank is engaged in the general commercial banking business
and provides a full range of banking services and trust services to its
customers. Pennview Savings Bank is engaged in attracting deposits from general
public and investing such deposits primarily in loans secured by residential
properties and consumer loans. Delview, Inc. a wholly owned subsidiary of
Pennview, is a passive investment holding company operating in Delaware. Univest
Realty Corporation was established to obtain, hold and operate properties for
the holding company and its subsidiaries. Univest Delaware, Inc. is a passive
investment holding company operating in Delaware. Univest Leasing Corporation is
inactive. Univest Insurance Company offers credit-related reinsurance plans.
Univest Electronic Services Corporation was established to provide data
processing services to Union National Bank in Souderton and other subsidiaries
of Univest Corporation of Pennsylvania.
Union National Bank and Trust Company, with its head office in Souderton,
Montgomery County, serves the area through twenty-six (26) banking offices, two
off-premises automated teller machines, one work site office and provides
banking and trust services to the residents and employees of ten retirement
homes. Fifteen banking offices are in Montgomery County and eleven banking
offices are in Bucks County. A work site office is located in Montgomery County.
One off-premises automated teller machine is located in Montgomery County and
one is located in Bucks County.
Pennview Savings Bank conducts operations through five (5) full-service
offices located in Souderton, Hatfield, Franconia, Silverdale and
Montgomeryville, Pennsylvania and provides banking services to the residents and
employees of two retirement homes.
As of January 31, 1999, Univest and its subsidiaries employed four hundred
and thirty-six (436) persons.
Competition
Univest's service areas are characterized by intense competition for
banking business among commercial banks, savings and loan associations, savings
banks and other financial institutions. Each of the Corporation's subsidiary
banks actively compete with such banks and financial institutions for local
retail and commercial accounts, in Bucks and Montgomery Counties, as well as
other financial institutions outside their primary service area.
In competing with other banks, savings and loan associations, and other
financial institutions, Union National Bank and Pennview Savings Bank seek to
provide personalized services through management's knowledge and awareness of
their service area, customers and borrowers.
Other competitors, including credit unions, consumer finance companies,
insurance companies and mutual funds, compete with certain lending and deposit
gathering services offered by Union National Bank and Pennview Savings Bank.
Supervision and Regulation
Union National Bank is subject to supervision and is regularly examined by
the Office of Comptroller of the Currency. Also, Union National Bank is subject
to examination by the Federal Deposit Insurance Corporation
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and by the Federal Reserve System. Pennview Savings Bank is regulated by the
Federal Deposit Insurance Corporation and by the Department of Banking of the
Commonwealth of Pennsylvania.
Univest is subject to the provisions of the Bank Holding Company Act of
1956, as amended, and is registered pursuant to its provisions. The Act
prohibits the acquisition by a bank holding company of a direct or indirect
ownership of more than five percent of the voting shares of any bank within the
United States without prior approval of the Board of Governors of the Federal
Reserve System, and also prohibits the granting of such approval in respect to
any bank within the United States located outside of the state where the bank
holding company's principal operations are conducted, unless the acquisition is
specifically authorized by the statutes of the state in which the bank is
located. With certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank, and from engaging directly
or indirectly in businesses unrelated to the business of banking, or managing,
or controlling banks. Under the Bank Holding Company Act Amendments of 1970,
which became effective on December 3, 1970, the Federal Reserve Board may
approve the acquisition by bank holding companies of non bank subsidiaries to
engage in activities that are closely related to banking and are in the public
interest. The amendments include a provision which prohibits banks, bank holding
companies and subsidiaries from engaging in tie-in arrangements. Bank tie-ins
involving a loan, discount, deposit, or trust service are specifically exempted,
and the Federal Reserve Board is authorized to make exceptions by regulations.
As a bank holding company, Univest is subject to the reporting requirements
of the Board of Governors of the Federal Reserve System, and Univest, together
with its subsidiaries, is subject to examination by the Board. The Federal
Reserve Act limits the amount of credit which a member bank may extend to its
affiliates, and the amount of its funds which it may invest in or lend on the
collateral of the securities of its affiliates. Under the Federal Deposit
Insurance Act, insured banks are subject to the same limitations.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
("FDICIA") was enacted, which substantially revised the bank regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements in order to minimize losses to the FDIC.
FDICIA establishes five capital tiers: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically undercapitalized" and imposes significant restrictions on the
operations of a bank that is not at least adequately capitalized. A depository
institution's capital tier will depend upon where its capital levels are in
relation to various relevant capital measures, which will include a risk-based
capital measure, a leverage ratio capital measure and certain other factors.
Under the requirements, Univest has Tier I capital ratios of 12.3% and 14.1%,
and total risk-based capital ratios of 13.4% and 15.2% at December 31, 1998 and
1997, respectively. These ratios place Univest in the "well-capitalized"
category under regulatory standards.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal banking
regulators within 15 days of any material events that affect the capital
position of the institution.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, a
maximum ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly traded
shares (if feasible) and such other standards as the agency deems appropriate.
FDICIA also contains a variety of other provisions that affect the
operations of the Corporation, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, certain
3
<PAGE>
restrictions on investments and activities of state-chartered insured banks and
their subsidiaries and limitations on credit exposure between banks.
Finally, FDICIA limits the discretion of the FDIC with respect to deposit
insurance coverage by requiring that, except in very limited circumstances, the
FDIC's course of action in resolving a problem bank must constitute the "least
costly resolution" for the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), as the case may be. The FDIC has
interpreted this standard as requiring it not to protect deposits exceeding the
$100,000 insurance limit in more situations than was previously the case. In
addition, FDICIA prohibits payments by the FDIC on uninsured deposits in foreign
branches of U.S. banks and will severely limit the "too big to fail" doctrine
under which the FDIC formerly protected deposits exceeding the $100,000
insurance limit in certain failed banking institutions.
Implementation of FDICIA has not had a material impact on the business or
operations of the Corporation.
Credit and Monetary Policies
Union National Bank is affected by the fiscal and monetary policies of the
federal government and its agencies, including the Federal Reserve System. An
important function of the policies is to curb inflation and control recessions
through control of the supply of money and credit. The Federal Reserve System
uses its powers to regulate reserve requirements of member banks, the discount
rate on member-bank borrowings, interest rates on time and savings deposits of
member banks, and to conduct open-market operations in United States Government
securities to exercise control over the supply of money and credit. The policies
have a direct effect on the amount of bank loans and deposits and on the
interest rates charged on loans and paid on deposits, with the result that the
policies have a material effect on bank earnings. Future policies of the Federal
Reserve Bank System and other authorities cannot be predicted, nor can their
effect on future bank earnings be predicted.
Pennview Savings Bank and Union National Bank are members of the Federal
Home Loan Bank System which consists of 12 regional Federal Home Loan Banks,
with each subject to supervision and regulation by the newly created Federal
Housing Finance Board. The Federal Home Loan Banks provide a central credit
facility primarily for member institutions. The Banks, as members of the Federal
Home Loan Bank of Pittsburgh, are required to acquire and hold shares of capital
stock in that Federal Home Loan Bank in an amount equal to at least 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the Federal Home Loan Bank of Pittsburgh,
whichever is greater.
Interstate Acquisitions
The Interstate Banking Act allows federal regulators to approve mergers
between adequately capitalized banks from different states regardless of whether
the transaction is prohibited under any state law, unless one of the banks' home
states has enacted a law expressly prohibiting out-of-state mergers before June
1997. This act also allows a state to permit out-of-state banks to establish and
operate new branches in this state. The Commonwealth of Pennsylvania has "opted
in" to this interstate merger provision. Therefore, the prior requirement that
interstate acquisitions would only be permitted when another state had
"reciprocal" legislation that allowed acquisitions by Pennsylvania-based bank
holding companies has been eliminated. The new Pennsylvania legislation,
however, retained the requirement that an acquisition of a Pennsylvania
institution by a Pennsylvania or a non-Pennsylvania-based holding company must
be approved by the Banking Department.
Statistical Disclosure
Univest was incorporated under Pennsylvania law in 1973 for the purpose of
acquiring the stock of Union National Bank and subsequently to engage in other
business activities permitted under the Bank Holding Company Act. On September
28, 1973, pursuant to an exchange offer, Univest acquired the outstanding stock
of Union National Bank and on August 1, 1990 acquired the stock of Pennview
Savings Bank. Two new subsidiaries were
4
<PAGE>
incorporated on September 8, 1998 in the State of Delaware. Univest Delaware,
Inc. and Delview, Inc. were formed as passive investment companies. Univest
Delaware, Inc. is wholly owned by the Corporation and Delview, Inc. is wholly
owned by Pennview. The following financial data appearing on pages 6 through 17
reflects consolidated information. Where averages are reported, daily
information has been used for all subsidiaries.
5
<PAGE>
<TABLE>
<CAPTION>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
($ in thousands)
1998 1998/1997
Average Income/ Avg. Volume Rate Average
ASSETS: Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 31,321 $ 29,244
Time deposits with other banks 11,273 $ 626 5.6 $ 541 $ 2 $ 543 1,522
U.S. Government obligations 196,033 11,602 5.9 (273) (399) (672) 199,733
Oblig. of states & political sub 6,858 307 4.5 93 (5) 88 4,728
Other securities 67,637 4,328 6.4 1,993 (37) 1,956 36,547
Federal Reserve bank stock 761 46 6.0 -- -- -- 761
Federal funds sold and other
short-term investments 18,057 988 5.5 757 8 765 4,204
----------- ----------- -----------
Total investments 289,346 17,271 6.0 245,973
----------- ----------- ---- -----------
Commercial loans 157,363 14,402 9.2 1,770 -- 1,770 137,520
Real estate loans 345,781 28,879 8.4 (1,289) (1,444) (2,733) 361,089
Installment loans 86,505 7,350 8.5 977 -- 977 75,395
Home equity loans 14,614 1,549 10.6 (67) (31) (98) 15,300
Municipal loans 41,456 2,383 5.7 287 37 324 36,545
----------- ----------- -----------
Gross loans 645,719 54,563 8.4 625,849
----------- ----
Less: valuation reserve (10,439) (10,159)
----------- -----------
Net loans 635,280 615,690
----------- -----------
Property and equipment, net 16,237 16,761
Other assets 32,711 20,047
----------- -----------
Total assets $ 1,016,168 $ 929,237
=========== ===========
<CAPTION>
1997 1997/1996 1996
Income/ Avg. Volume Rate Average Income/ Avg.
ASSETS: Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 30,866
Time deposits with other banks $ 83 5.5 $ 51 $ 2 $ 53 588 $ 30 5.1
U.S. Government obligations 12,274 6.1 (709) (214) (923) 213,981 13,197 6.2
Oblig. of states & political sub 219 4.6 35 12 47 3,967 172 4.3
Other securities 2,372 6.5 1,322 16 1,338 16,278 1,034 6.4
Federal Reserve bank stock 46 6.0 1 -- 1 752 45 6.0
Federal funds sold and other
short-term investments 223 5.3 7 (4) 3 4,083 220 5.4
-------- ----------- --------
Total investments 15,134 6.2 239,061 14,668 6.1
-------- ---- ----------- -------- ----
Commercial loans 12,632 9.2 1,239 (124) 1,115 124,372 11,517 9.3
Real estate loans 31,612 8.8 (245) 363 118 363,050 31,494 8.7
Installment loans 6,373 8.5 1,157 (61) 1,096 61,190 5,277 8.6
Home equity loans 1,647 10.8 (127) 16 (111) 16,393 1,758 10.7
Municipal loans 2,059 5.6 389 (268) 121 29,827 1,938 6.5
-------- ----------- --------
Gross loans 54,323 8.7 594,832 51,984 8.7
-------- ---- -------- ----
Less: valuation reserve (9,582)
----------
Net loans 585,250
----------
Property and equipment, net 16,436
Other assets 17,656
----------
Total assets $ 889,857
==========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
1998 1998/1997
LIABILITIES: Average Income/ Avg. Volume Rate Average
Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 132,132 $ 118,960
---------- ----------
Interest checking deposits 80,524 $ 1,101 1.4 $ 36 $ 74 $ 110 73,521
Money market savings 128,970 5,322 4.1 2,166 539 2,705 77,013
Regular savings 132,012 3,170 2.4 116 (129) (13) 128,546
Certificates of deposit 325,798 18,270 5.6 714 -- 714 312,517
Time open & club accounts 30,800 1,552 5.0 (673) (44) (717) 44,447
---------- ----------
Total time, int., and inv
checking deposits 698,104 29,415 4.2 636,044
---------- ---------- --- ----------
Total deposits 830,236 755,004
---------- ----------
Federal funds purchased 234 14 6.0 (200) 11 (189) 3,541
Loans & securities sold under
agreement to repurchase 56,181 1,829 3.3 221 -- 221 49,133
Other borrowings 10,135 557 5.5 81 (9) 72 8,592
Subordinated notes -- -- 0.0 0 -- -- --
---------- ---------- ----------
Total borrowings 66,550 2,400 3.6 61,266
---------- ---------- --- ----------
Accrued expenses & other liab 14,617 11,787
---------- ----------
Total liabilities 911,403 828,057
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock 37,765 19,636
Capital surplus 19,696 34,539
Retained earnings 47,304 47,005
---------- ----------
Total shareholders' equity 104,765 101,180
---------- ----------
Total liabilities and share-
holders' equity $1,016,168 $ 929,237
========== ==========
Weighted avg. yield on interest-earning assets 7.7 %
Weighted avg. rate paid on interest-bearing liab. 4.2 %
Net yield 4.3 %
<CAPTION>
1997 1997/1996 1996
LIABILITIES: Income/ Avg. Volume Rate Average Income/ Avg.
Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 107,993
---------
Interest checking deposits $ 991 1.3 $ (6) $ -- $ (6) 73,973 $ 997 1.3
Money market savings 2,617 3.4 475 319 794 63,849 1,823 2.9
Regular savings 3,183 2.5 51 -- 51 126,118 3,132 2.5
Certificates of deposit 17,556 5.6 (83) -- (83) 313,867 17,639 5.6
Time open & club accounts 2,269 5.1 246 40 286 39,576 1,983 5.0
--------- ----------
Total time, int., and inv
checking deposits 26,616 4.2 617,383 25,574 4.1
---------- --- --------- ---------- ---
Total deposits 725,376
---------
Federal funds purchased 203 5.7 (51) 9 (42) 4,433 245 5.5
Loans & securities sold under
agreement to repurchase 1,608 3.3 160 -- 160 44,001 1,448 3.3
Other borrowings 485 5.6 56 15 71 7,612 414 5.4
Subordinated notes -- 0.0 -- -- -- -- -- 0.0
---------- ---------- ----------
Total borrowings 2,296 3.7 56,046 2,107 3.8
---------- --- ---------- ---------- ---
Accrued expenses & other liab 14,939
----------
Total liabilities 796,361
----------
SHAREHOLDERS' EQUITY:
Common stock 19,636
Capital surplus 34,545
Retained earnings 39,315
----------
Total shareholders' equity 93,496
----------
Total liabilities and share-
holders' equity $ 889,857
==========
Weighted avg. yield on interest-earning assets 8.0 % 8.0 %
Weighted avg. rate paid on interest-bearing liab. 4.1 % 4.1 %
Net yield 4.7 % 4.7 %
</TABLE>
7
<PAGE>
Note: (1) For rate calculation purposes, average loan categories include
unearned discount.
(2) Nonaccrual loans have been included in the average loan balances.
(3) Certain amounts have been reclassified to conform with the
current-year presentation.
(4) Included in interest income are loan fees of $1,106 for 1998,
$1,253 for 1997 and $1,364 for 1996.
(5) Table I has not been tax equated.
* The change due to the volume/rate variance and average volume and percent
roundings have been allocated to volume.
8
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE II. INVESTMENT PORTFOLIO (BOOK VALUE)
(Thousands of Dollars)
CARRYING AMOUNT OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 (a) 1997 (a) 1996 (a)
-------- -------- --------
<S> <C> <C> <C>
U. S. Treasury, government corporations and agencies $225,294 $195,048 $213,360
State and political subdivisions 17,966 4,676 4,980
Mortgage-backed securities 74,233 53,996 18,529
Other 10,172 4,445 5,344
-------- -------- --------
Total $327,665 $258,165 $242,213
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
December 31, December 31, December 31, December 31, December 31, December 31,
1998 1998 1997 1997 1996 1996
Amount (a) Yield (b) Amount (a) Yield (b) Amount (a) Yield (b)
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 Year or less $ 93,671 5.78% $ 69,916 5.88% $ 73,215 6.50%
1 Year - 5 Years 158,938 5.64% 136,317 6.19% 155,662 6.06%
5 Years - 10 Years 20,781 6.33% 11,652 6.54% 6,784 6.09%
After 10 Years 54,275 6.24% 40,280 6.51% 6,552 6.16%
-------- ---- -------- ---- -------- ----
Total $327,665 5.82% $258,165 6.17% $242,213 6.20%
======== ==== ======== ==== ======== ====
</TABLE>
Refer to Note 3 to the consolidated financial statements
a. Held to maturity and available for sale portfolios are combined.
b. Weighted average yield is calculated by dividing income, which has not been
tax equated on tax-exempt obligations, within each maturity range by
outstanding amount of the related investment.
9
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART A. TYPES OF LOANS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Real estate Loans
Construction and land development $ 33,530 $ 30,951 $ 34,733 $ 54,840 $ 50,954
Secured by 1-4 family residential properties 214,798 217,782 217,631 216,180 221,098
Other real estate loans 169,402 189,251 178,644 157,925 160,234
Commercial and industrial loans 171,699 138,812 124,788 120,692 114,103
Loans to individuals 64,306 53,500 47,466 40,648 36,810
All other loans 7,117 6,143 5,821 4,084 5,639
-------- -------- -------- -------- --------
Total loans $660,852 $636,439 $609,083 $594,369 $588,838
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART B. MATURITIES AND SENSITIVITY
TO CHANGES IN INTEREST RATES
(Thousands of Dollars)
The commercial mortgages and Industrial Development Authority mortgages
that are presently being written at both fixed and floating rates of interest
are written for a three (3) year term with a monthly payment based on a fifteen
(15) year amortization schedule. At each three-year anniversary date of the
mortgages, the interest rate is renegotiated and the term of the loan is
extended for an additional three years. At each three-year anniversary date of
the mortgages, the Bank also has the right to require payment in full. These are
included in the "Due in One to Five Years" category on issue. The borrower has
the right to prepay the loan at any time.
The residential mortgages are presently being written on a one (1) or three
(3) year rollover basis. The monthly payment on these mortgages is based on a
thirty (30) year amortization schedule, unless the borrower requests a shorter
payout period. These are included in the "Due in One to Five Years" category on
issue. Fixed rate residential mortgages are also being written for terms of 15
and 30 years and are included in the "Due in over Five Years" category.
<TABLE>
<CAPTION>
As of December 31, 1998 Due in One Due in One Due in Over
Year or Less to Five Years Five Years Total
------------ ------------- ---------- -----
<S> <C> <C> <C> <C>
Real estate loans
Construction and land development $ 20,031 $ 9,770 $ 3,729 $ 33,530
Secured by 1-4 family residential properties 45,432 86,124 83,242 214,798
Other real estate loans 55,636 41,446 72,320 169,402
Commercial and industrial loans 132,399 26,478 12,822 171,699
Loans to individuals 25,177 35,484 3,645 64,306
All other loans 2,229 4,405 483 7,117
-------- -------- -------- --------
Total loans $280,904 $203,707 $176,241 $660,852
======== ======== ======== ========
Loans with a predetermined interest rate $ 95,345 $134,172 $167,201 $396,718
Loans with a floating or variable interest rate 185,559 69,535 9,040 264,134
-------- -------- -------- --------
$280,904 $203,707 $176,241 $660,852
======== ======== ======== ========
</TABLE>
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<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART C. RISK ELEMENTS
(Thousands of Dollars)
Nonaccrual, Past-Due and Restructured Loans and Other Assets
Performance of the entire loan portfolio is reviewed on a regular basis by
bank management and loan officers. A number of factors regarding the borrower,
such as overall financial strength, collateral values, and repayment ability,
are considered in deciding on what actions should be taken when determining the
collectibility of interest for accrual purposes.
Potential Problem Loans
When collectibility of interest and/or principal on a particular loan is
questionable, the loan is placed on nonaccrual status. If, at the time a
decision is made to cease accruing interest, it is determined that the
collection of previously accrued but unpaid interest is uncertain, a stipulated
amount is charged against current income. Conversly, if a loan on nonaccrual
status is paid in full, including interest, a credit is made to current income.
The total of nonaccruing and restructured loans in 1998 was $3,549. There was no
interest income recognized on these loans. If nonaccrual loans had been
performing in accordance with their contractual terms, additional income of $341
would have been recorded in 1998. In management's evaluation of the loan
portfolio risks, any significant future increases in nonperforming loans are
dependent to a large extent on the economic environment, or specific industry
problems.
Loan Concentrations
At December 31, 1998, there were no concentrations of loans exceeding 10%
of total loans other than disclosed in Table III, Part A.
Other Assets
At December 31, 1998, $393 in Other Real Estate Owned was classified as
nonperforming. This amount represents all Other Real Estate Owned as of December
31, 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
Principal Principal Principal Principal Principal
Balance Balance Balance Balance Balance
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $3,424 $3,136 $4,671 $5,855 $5,149
====== ====== ====== ====== ======
Accruing loans 90 days or more past due:
Real estate loans
Construction and land development -- -- -- -- --
Secured by 1-4 family dwellings 705 308 373 234 76
Other real estate 14 36 12 93 172
Commercial and industrial loans -- 21 19 -- --
Loans to individuals 204 159 180 174 247
All other loans -- -- -- -- --
------ ------ ------ ------ ------
Total loans, 90 days or more past due 923 524 584 501 495
====== ====== ====== ====== ======
Restructured loans, not included above 125 206 281 352 422
====== ====== ====== ====== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $635,939 $617,082 $590,144 $583,398 $585,644
Loan loss reserve at beginning of period $ 10,270 $ 9,801 $ 8,854 $ 8,876 $ 7,198
Charge-offs:
Real estate loans 575 552 990 1,842 701
Commercial and industrial loans 370 319 20 416 615
Loans to individuals 427 286 175 236 127
Home equity -- -- -- -- --
Other -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs: 1,372 1,157 1,185 2,494 1,443
======== ======== ======== ======== ========
Recoveries:
Real estate loans 324 167 458 316 146
Commercial and industrial loans 256 78 529 157 816
Loans to individuals 102 66 76 75 170
Home equity -- -- -- -- --
Other -- 5 24 29 39
-------- -------- -------- -------- --------
Total recoveries: 682 316 1,087 577 1,171
======== ======== ======== ======== ========
Net charge-offs: 690 841 98 1,917 272
Additions to loan loss reserve 958 1,310 1,045 1,895 1,950
Loan loss reserve at end of period $ 10,538 $ 10,270 $ 9,801 $ 8,854 $ 8,876
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Loan type Loan type Loan type Loan type Loan type
as % as % as % as % as %
Amount in reserve by category: of loans of loans of loans of loans of loans
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans 63.2 $ 2,358 68.8 $ 3,511 70.8 $ 3,146 72.2 $ 817 73.4 $ 2,999
Commercial and industrial loans 26.0 3,575 21.8 610 20.5 1,332 20.3 2,459 19.4 2,495
Loans to individuals 9.7 1,049 8.4 617 7.8 354 6.8 347 6.3 490
All other loans 1.1 11 1.0 11 0.9 11 0.7 11 0.9 15
Unallocated portion 3,545 5,521 4,958 5,220 2,876
------- -------- ------- ------- -------
Total $10,538 $ 10,270 $ 9,801 $ 8,854 $ 8,875
======= ======== ======= ======= =======
Ratio of Net charge-offs versus
average loans 0.1% 0.1% 0.0% 0.3% 0.0%
</TABLE>
Total cash-basis and nonaccrual loans of $3,424 at December 31, 1998, were
generally comprised of $955 in residential real estate loans, $2,176 in
commercial real estate loans and $293 in commercial and other loans.
13
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE IV. SUMMARY OF LOAN LOSS EXPERIENCE
(Thousands of Dollars)
Management's methodology to determine the adequacy of and the provisions to
the reserve considers specific credit reviews, past loan loss experience,
current economic conditions and trends, and the volume, growth, and composition
of the loan portfolio.
Reserve for possible loan losses is determined through a quarterly
evaluation of reserve adequacy which takes into consideration the growth of the
loan portfolio, the status of past-due loans, current economic conditions,
various types of lending activity, policies, real estate and other loan
commitments, and significant changes in the charge-off activity. Loans on the
"watch list" and all nonaccrual loans are evaluated individually. All other
loans are evaluated as pools. Based on historical loss experience, loss factors
are determined giving consideration to the areas noted in the first paragraph
and applied to the pooled loan categories to develop the general or allocated
portion of reserve. Loans are also reviewed for impairment based on discounted
cash flows using the loans' initial effective interest rate or the fair value of
the collateral for certain collateral-dependent loans as provided under SFAS No.
114. Management also reviews the activity within the allowance to determine what
actions, if any, should be taken to address differences between estimated and
actual losses. Any of the above factors may cause the provision to fluctuate.
The methodology for establishing the loan loss reserve and provision has not
changed in recent years.
The reserve for possible loan losses is made up of the allocated or general
reserve and the unallocated portion, which is the remainder after necessary
allocations are made. The following table summarizes the two categories for the
periods indicated.
December 31,
-------------------------------------
1998 1997 1996
------- ------- -------
Allocated $ 6,993 $ 4,749 $ 4,843
Unallocated 3,545 5,521 4,958
------- ------- -------
Total $10,538 $10,270 $ 9,801
======= ======= =======
The increase of $2.2 million in the allocated portion of the reserve for
the year ended December 31, 1998 was due mainly to a $2.0 million increase in
the uncriticized portion of the allowance related to the commercial loan pool.
This increase was caused by a higher volume of losses among small business
credits, which migrate more quickly from pass to loss than larger business
credit charge offs. The historical loss factor for this segment of the
commercial loan portfolio increased from 0.15% at December 31, 1997 to 1.11% at
December 31, 1998. Volume also increased from $142 million at December 31, 1997
to $174 million at December 31, 1998. Industry concentrations increased in
volume by $32 million from $56 million at December 31, 1997 to $88 million at
December 31, 1998. This increase relates to a segment in the real estate
industry. The loss factor for calculating the reserve applicable to industry
concentration increased from 0.20% at December 31, 1997 to 0.60% at December 31,
1998. The change in volume and change in loss factor resulted in an increase of
$400 thousand in the allocated reserve. The approximate $2.2 million increase in
the allocated reserve for the year ended December 31, 1998 caused a
corresponding decrease in the unallocated portion of the reserve. Other
immaterial fluctuation occurred in both volumes and estimation factors of other
pools of loans.
Management believes that both the allocated and unallocated portions of the
reserve are maintained at a level which is adequate to absorb potential losses
in the loan portfolio.
14
<PAGE>
There were no significant changes in either the allocated or
unallocated portions of the reserve for the year ended December 31, 1998 when
compared to the year ended December 31, 1997.
As the accompanying table indicates, the amount of loan loss provision
charged to expense for 1998 was $958 compared to $1,310 in 1997 and $1,045 in
1996.
15
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE V. DEPOSITS
(Thousands of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
A. Average: Noninterest-bearing demand deposits $ 132,132 $ 118,960 $ 107,993
Interest checking 80,524 73,521 73,973
Money Market savings 128,970 77,013 63,849
Saving deposits 132,012 128,546 126,118
Time deposits 356,598 356,964 353,443
--------- --------- ---------
Total $ 830,236 $ 755,004 $ 725,376
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Due 3 months Due 3 - 6 Due 6 - 12 Due over
B. Year-end balance: ($100 or more) outstanding as of or less months months 12 months
December 31, 1998 ------- ------ ------ ---------
<S> <C> <C> <C> <C>
Certificates of deposit $ 3,542 $ 1,736 $ 5,828 $ 10,563
Other time deposits $ 15,653 $ 5,213 $ 1,408 $ 850
</TABLE>
Note: Univest and its subsidiaries do not have any foreign offices or foreign
deposits
TABLE VI. RETURN ON EQUITY AND ASSETS (RATIOS)
(Shown as percentages)
1998 1997 1996
---- ---- ----
Return on assets 1.4 1.4 1.4
Return on equity 13.8 13.0 12.9
Dividend payout ratio 29.9 28.2 23.1
Equity to assets ratio 10.3 10.9 10.5
16
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE VII. SHORT TERM BORROWINGS
(Thousands of Dollars)
LOANS AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at December 31 $62,890 $48,389 $48,661
Weighted average interest rate at year end 3.2% 3.3% 3.3%
Maximum amount outstanding at any month's end $68,384 $58,521 $53,109
Average amount outstanding during the year $56,181 $49,133 $44,001
Weighted average interest rate during the year 3.3% 3.3% 3.3%
</TABLE>
17
<PAGE>
Item 2. Properties
Univest and its subsidiaries occupy thirty-one properties in Montgomery and
Bucks Counties in Pennsylvania, which are used principally as banking offices.
Note 6, appearing on page 22 of the Annual Report to Shareholders (Exhibit 13),
is hereby incorporated in this item.
Item 3. Legal Proceedings
There are no proceedings pending other than the ordinary routine litigation
incident to the business of the corporation.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), pages 43-44. Dividend and other restrictions are incorporated by
reference from Note 16 of the 1998 Annual Report to Shareholders (Exhibit 13),
pages 29 and 30. The number of shareholders as of February 28, 1999, was 2,032.
Item 6. Selected Financial Data
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), page 34.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), pages 35 through 42. Dividend and other restrictions are
incorporated by reference from Note 16 of the 1998 Annual Report to Shareholders
(Exhibit 13), pages 29 and 30.
Item 7 (a). Qualitative and Quantitative Disclosures About Market Risk
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), pages 41 and 42.
Item 8. Financial Statements and Supplementary Data
Consolidated balance sheets of the registrant at December 31, 1998 and
1997, and consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years ended December 31, 1998, and the
independent auditors' report thereon are incorporated by reference from the 1998
Annual Report to Shareholders (Exhibit 13), pages 13 through 16.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial
Disclosures
None
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
Executive Officers
The names and ages of all executive officers of Univest are as follows:
<TABLE>
<CAPTION>
Principal Occupation
Officer Title during past 5 years Age
------- ----- ------------------- ---
<S> <C>
Merrill S. Moyer Chairman Chairman and Chief Executive 65
Officer of the Corporation and
Chairman of Union National Bank
Norman L. Keller Executive Vice President and CEO of Pennview 61
President Savings Bank and Executive
Vice President of the Corporation
Marvin A. Anders Vice Chairman Vice Chairman of the Corporation 59
and Union National Bank
William S. Aichele President President of the Corporation 48
and President and CEO of
Union National Bank
Wallace H. Bieler Executive Vice Executive Vice President 53
President and CFO of the Corporation
and Union National Bank
</TABLE>
There is no family relationship among any of the executive officers of Univest.
Item 11. Executive Compensation
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
Item 13. Certain Relationships and Related Transactions
During 1998, the Corporation and its subsidiaries paid $429,113 to H.
Mininger & Son, Inc. for building expansion projects which were in the normal
course of business on substantially the same terms as available from others. H.
Ray Mininger, Alternate Director, is president of H. Mininger & Sons, Inc.
19
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. & 2. Financial Statements and Schedules
The financial statements listed in the accompanying index
to financial statements are filed as part of this annual
report.
3. Listing of Exhibits
The exhibits listed on the accompanying index to exhibits
are filed as part of this annual report.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1998.
(c) Exhibits - The response of this portion of item 14 is submitted
as a separate section.
(d) Financial Statement Schedules - none.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIVEST CORPORATION OF PENNSYLVANIA
Registrant
By: /s/ Norman L. Keller
---------------------------------
Norman L. Keller
Secretary and Executive Vice President, March 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Merrill S. Moyer /s/ James L. Bergey
- ---------------------------- ---------------------------
Merrill S. Moyer James L. Bergey
Chairman and Director, March 24, 1999 Director, March 24, 1999
/s/ Marvin A. Anders /s/ Harold M. Mininger
- ---------------------------- ---------------------------
Marvin A. Anders Harold M. Mininger
Vice Chairman, March 24,1999 Director, March 24, 1999
/s/ Wallace H. Bieler /s/ Paul G. Shelly
- ---------------------------- ---------------------------
Wallace H. Bieler Paul G. Shelly
Executive Vice President and CFO, March 24, 1999 Director, March 24, 1999
/s/ Charles H. Hoeflich /s/ R. Lee Delp
- ---------------------------- ---------------------------
Charles H. Hoeflich R. Lee Delp
Chairman Emeritus, March 24, 1999 Director, March 24, 1999
/s/ John U. Young /s/ Clair W. Clemens
- ---------------------------- ---------------------------
John U. Young Clair W. Clemens
Director, March 24, 1999 Director, March 24, 1999
/s/ Thomas K. Leidy
- ----------------------------
Thomas K. Leidy
Director, March 24, 1999
21
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
INDEX TO EXHIBITS
[Item 14(a)]
Description
-----------
(3) Articles of Incorporation and By-Laws
Articles of Incorporation and Charter are incorporated by reference to the
1973 Form 10-K.
(4) Instruments Defining the Rights of Security Holders, Including Debentures
Specimen Copy of Common Stock is incorporated herein by reference to the
1973 Form 10-K.
(10) Material Contracts - Not Applicable.
(11) Statement Re Computation of Per Share Earnings - See Footnote 13 in Item
(13).
(12) Statements Re Computation of Ratios - Not Applicable.
(13) Annual Report to Shareholders
(18) Letter Re Change in Accounting Principles - Not Applicable.
(19) Previously Unfiled Documents - Not Applicable.
(21) Subsidiaries of the Registrant
(23) Consent of independent auditors
(24) Power of Attorney - Not Applicable.
22
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[Item 14(a)]
Annual Report
to Shareholders*
----------------
Report of Independent Auditors 33
Consolidated balance sheets at 13
December 31, 1998 and 1997
Consolidated statements of income for each of the 14
three years in the period ended December 31, 1998
Consolidated statements of changes in shareholders' equity 15
for each of the three years in the period ended
December 31, 1998
Consolidated statements of cash flows for 16
each of the three years in the period ended
December 31, 1998
Notes to consolidated financial statements 17-32
Financial statement schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
* Refers to page numbers in the Annual Report to Shareholders for 1998 (Exhibit
13) which is incorporated by references.
23
Consolidated Financial Highlights
(thousands, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage
1998 1997 Change
- --------------------------------------------------------------------------------
Earnings
<S> <C> <C> <C>
Interest Income ................. $ 40,645 $ 40,628 .04%
Income before income taxes ...... 20,547 19,164 7.22
Applicable income taxes ......... 6,046 5,987 .99
Net income ...................... 14,501 13,177 10.05
Per Share
Average shares outstanding ...... 7,539 7,730 (2.47)
Income before income taxes ...... $ 2.72 $ 2.47 10.12
Applicable income taxes ......... $ .80 $ .77 3.90
Net income:
Basic ......................... $ 1.92 $ 1.70 12.94
Diluted ....................... $ 1.91 $ 1.69 13.02
Book Value ...................... $ 14.02 $ 13.64 2.79
Balance Sheets
Investments .................. $ 327,665 $ 258,165 26.92
Net loans .................... 649,911 625,293 3.94
Deposits ..................... 874,504 792,868 10.30
Shareholders' equity ......... 103,177 104,604 (1.36)
Assets ....................... 1,070,470 973,157 10.00
</TABLE>
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------------------
<S> <C> <C>
Assets
Cash and due from banks ........................................................ $ 26,011 $ 33,352
Interest-bearing deposits with other banks ..................................... 3,940 5,001
Investment securities held to maturity (market value $217,515
and $142,205 at December 31,
1998 and 1997, respectively) ................................................. 216,404 141,972
Investment securities available for sale ....................................... 111,261 116,193
Federal funds sold and other short-term investments ............................ 12,700 2,000
Loans .......................................................................... 660,449 635,563
Less: Reserve for possible loan losses ....................................... (10,538) (10,270)
--------------------------
Net loans .................................................................. 649,911 625,293
--------------------------
Premises and equipment, net .................................................... 15,828 16,604
Accrued interest and other assets .............................................. 34,415 32,742
--------------------------
Total assets ............................................................... $ 1,070,470 $ 973,157
==========================
Liabilities
Demand deposits, noninterest bearing ........................................... $ 152,094 $ 129,892
Demand deposits, interest bearing .............................................. 238,622 176,115
Savings deposits ............................................................... 138,936 127,965
Time deposits .................................................................. 344,852 358,896
--------------------------
Total deposits ............................................................. 874,504 792,868
--------------------------
Securities sold under agreements to repurchase ................................. 62,890 48,389
Other short-term borrowings .................................................... 1,155 1,157
Accrued expenses and other liabilities ......................................... 19,669 17,064
Long-term debt ................................................................. 9,075 9,075
--------------------------
Total liabilities .......................................................... 967,293 868,553
--------------------------
Shareholders' equity
Common stock, $5 par value; 12,000,000 shares authorized at December 31,
1998 and 1997 and 7,854,321 shares issued at
December 31, 1998 and 1997 and 7,360,912 and 7,671,305 shares outstanding at
December 31, 1998 and 1997, respectively ..................................... 39,272 39,272
Additional paid-in capital ..................................................... 14,908 14,908
Retained earnings .............................................................. 62,992 53,691
Accumulated other comprehensive income ......................................... 582 350
Treasury stock, at cost; 493,409 shares and 183,017 shares
at December 31, 1998 and 1997, respectively ................................. (14,577) (3,617)
--------------------------
Total shareholders' equity ................................................. 103,177 104,604
--------------------------
Total liabilities and shareholders' equity ..................................... $ 1,070,470 $ 973,157
==========================
</TABLE>
See accompanying notes to consolidated financial statements.
13
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Consolidated Statements of Income
(in thousands, except share data)
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Interest income Interest and fees on loans:
Taxable .............................................. $ 52,180 $ 52,264 $ 50,046
Exempt from federal income taxes ..................... 2,383 2,059 1,938
------------------------------------
Total interest and fees on loans ....................... 54,563 54,323 51,984
Interest and dividends on investment securities:
U.S. Government obligations .......................... 11,602 12,274 13,197
Obligations of state and political subdivisions ...... 307 219 172
Other securities ..................................... 4,374 2,418 1,079
Interest on time deposits with other banks ............. 626 83 30
Interest on federal funds sold and term federal funds .. 988 223 220
------------------------------------
Total interest income .............................. 72,460 69,540 66,682
------------------------------------
Interest expense
Interest on demand deposits ............................ 6,423 3,608 2,820
Interest on savings deposits ........................... 3,170 3,183 3,132
Interest on time deposits .............................. 19,822 19,825 19,622
Interest on long-term debt ............................. 500 425 358
Interest--all other .................................... 1,900 1,871 1,749
------------------------------------
Total interest expense ............................. 31,815 28,912 27,681
------------------------------------
Net interest income ......................................... 40,645 40,628 39,001
Provision for loan losses ................................... 958 1,310 1,045
------------------------------------
Net interest income after provision for loan losses ......... 39,687 39,318 37,956
------------------------------------
Other income
Trust .................................................. 3,202 2,695 2,290
Service charges on demand deposits ..................... 3,032 1,924 1,814
Gains (losses) on sales of securities .................. 97 95 (9)
Gains on sales of mortgages ............................ 250 95 43
Other .................................................. 4,113 3,078 2,091
------------------------------------
Total other income ................................. 10,694 7,887 6,229
------------------------------------
Other expenses
Salaries and benefits .................................. 15,703 15,476 14,461
Net occupancy .......................................... 2,244 2,178 2,073
Equipment .............................................. 2,697 2,500 2,428
Other .................................................. 9,190 7,887 8,157
------------------------------------
Total other expenses ............................... 29,834 28,041 27,119
------------------------------------
Income before income taxes .................................. 20,547 19,164 17,066
Applicable income taxes ..................................... 6,046 5,987 5,028
------------------------------------
Net income .................................................. $ 14,501 $ 13,177 $ 12,038
====================================
Net income per share:
Basic .................................................. $ 1.92 $ 1.70 $ 1.54
====================================
Diluted ................................................ $ 1.91 $ 1.69 $ 1.54
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other Additional
Comprehensive Common Paid-in Retained Treasury
Income Stock Capital Earnings Stock Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 .......................... $ 261 $ 19,638 $ 34,559 $ 35,028 $ (150) $ 89,336
---------
Comprehensive Income
Net Income for 1996 ............................... 12,038 12,038
Other comprehensive income, net of income
taxes of ($135)
Unrealized gains and (losses) on
investment securities available-for-sale ...... (243) (243)
---------
Total comprehensive income ............................ 11,795
---------
Cash dividends declared ($0.355 per share) ......... (2,773) (2,773)
Cash paid in lieu of fractional shares ............. (2) (15) (17)
Stock issued under dividend reinvestment
and employee stock purchase plans ................ (2) 249 247
Exercise of stock options .......................... (31) 140 109
Acquisition of treasury stock
(88,182 shares) .................................. (1,430) (1,430)
------------------------------------------------------------------------
Balance at December 31, 1996 .......................... 18 19,636 34,544 44,260 (1,191) 97,267
---------
Comprehensive Income
Net Income for 1997 ............................... 13,177 13,177
Other comprehensive income, net of income
taxes of $179
Unrealized gains and (losses) on
investment securities available-for-sale ...... 332 332
---------
Total comprehensive income ............................ 13,509
---------
Cash dividends declared ($0.48 per share) ......... (3,707) (3,707)
100% stock dividend payable May 1, 1998 ............ 19,636 (19,636) --
Stock issued under dividend reinvestment
and employee stock purchase plans ................ (7) 863 856
Exercise of stock options .......................... (32) 91 59
Acquisition of treasury stock
(151,964 shares) ................................. (3,380) (3,380)
------------------------------------------------------------------------
Balance at December 31, 1997 .......................... 350 39,272 14,908 53,691 (3,617) 104,604
---------
Comprehensive Income
Net Income for 1998 ............................... 14,501 14,501
Other comprehensive income, net of income
taxes of $125
Unrealized gains and (losses) on
investment securities available-for-sale ...... 232 232
---------
Total comprehensive income ............................ 14,733
---------
Cash dividends declared ($0.575 per share) ........... (4,328) (4,328)
Stock issued under dividend reinvestment
and employee stock purchase plans .................. (4) 1,208 1,204
Exercise of stock options ............................. (868) 1,524 656
Acquisition of treasury stock (346,137 shares) ........ (13,692) (13,692)
------------------------------------------------------------------------
Balance at December 31, 1998 .......................... $ 582 $ 39,272 $ 14,908 $ 62,992 $(14,577) $103,177
=======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ................................................................ $ 14,501 $ 13,177 $ 12,038
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses in excess of net charge-offs .................. 268 469 947
Depreciation of premises and equipment .................................. 2,475 2,407 2,239
Discount accretion on investment securities and
time deposits ......................................................... (249) (412) (613)
Deferred income tax benefit ............................................. (279) (162) (119)
Realized (gains) losses on investment securities ........................ (97) (95) 9
Realized gains on sales of mortgages .................................... (250) (95) (43)
Increase (decrease) in net deferred loan fees ........................... 114 (497) (116)
(Increase) decrease in interest receivable and other assets ............. (1,673) 717 (604)
Increase (decrease) in accrued expenses and other liabilities ........... 2,611 3,350 (2,445)
-----------------------------------------------
Net cash provided by operating activities ............................. 17,421 18,859 11,293
Cash flows from investing activities
Proceeds from maturing time deposits ...................................... -- -- 96
Proceeds from maturing securities held to maturity ........................ 74,884 75,289 48,528
Proceeds from maturing securities available for sale ...................... 25,045 9,471 6,380
Proceeds from sales of securities available for sale ...................... 25,079 24,024 10,991
Decrease (increase) in interest-bearing deposits .......................... 1,061 (4,641) --
Purchases of investment securities held to maturity ....................... (149,181) (44,144) (52,329)
Purchases of investment securities available for sale ..................... (44,623) (79,576) (31,039)
Premium paid to purchase bank-owned life insurance ........................ -- (15,000) --
Net (increase) decrease in federal funds sold and
other short-term investments ............................................ (10,700) (1,931) 16,458
Proceeds from sales of mortgages .......................................... 22,164 8,667 10,356
Net increase in loans ..................................................... (46,914) (36,569) (31,295)
Capital expenditures ...................................................... (1,699) (2,168) (2,882)
-----------------------------------------------
Net cash used in investing activities ................................. (104,884) (66,578) (24,736)
Cash flows from financing activities
Assumption of deposits .................................................... -- 14,186 --
Net increase in deposits .................................................. 81,636 43,227 8,741
Net increase (decrease) in short-term borrowings .......................... 14,499 (11,170) 13,904
Proceeds from long-term debt .............................................. -- 2,000 7,000
Purchases of treasury stock ............................................... (13,692) (3,380) (1,430)
Stock issued under dividend reinvestment and
employee stock purchase plans ........................................... 1,204 856 249
Proceeds from exercise of stock options ................................... 656 59 109
Cash dividends ............................................................ (4,181) (3,641) (3,087)
Repayments of long-term debt .............................................. -- -- (4,010)
-----------------------------------------------
Net cash provided by financing activities ............................. 80,122 42,137 21,476
-----------------------------------------------
Net (decrease) increase in cash and due from banks ........................ (7,341) (5,582) 8,033
Cash and due from banks at beginning of year .............................. 33,352 38,934 30,901
-----------------------------------------------
Cash and due from banks at end of year .................................... $ 26,011 $ 33,352 $ 38,934
===============================================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ................................................................ $ 31,693 $ 28,425 $ 27,058
Income taxes ............................................................ $ 6,041 $ 5,975 $ 5,100
</TABLE>
See accompanying notes to consolidated financial statements.
16
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Note 1. Summary of Significant Accounting Policies
Organization
Univest Corporation of Pennsylvania (the Corporation) through its wholly
owned subsidiaries, Union National Bank and Trust Company (Union) and Pennview
Savings Bank (Pennview), is engaged in domestic commercial and retail banking
services and provides a full range of banking and trust services to its
customers. Union and Pennview serve the Montgomery and Bucks Counties of
Pennsylvania through 31 banking offices and provide banking and trust services
to the residents and employees of 12 retirement communities and a work site
office at Moyer Packing Company. This office serves only to cash payroll checks
for the Moyer Packing Company employees.
Two new subsidiaries were incorporated on September 8, 1998 in the State of
Delaware. Univest Delaware, Inc. and Delview, Inc. were formed as passive
investment holding companies. Univest Delaware is wholly owned by the
Corporation and Delview is wholly owned by Pennview.
Principles of Consolidation
The consolidated financial statements include the accounts of Univest
Corporation of Pennsylvania and its wholly owned subsidiaries, including Union
National Bank and Trust Company and Pennview Savings Bank, collectively referred
to herein as the "Banks." All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment Securities
Securities are classified as investments and carried at amortized cost if
management has the positive intent and ability to hold the securities to
maturity. Securities purchased with the intention of recognizing short-term
profits are placed in the trading account and are carried at market value.
Securities not classified as investment or trading are designated securities
available for sale and carried at fair value with unrealized gains and losses
reflected in accumulated other comprehensive income. The net unrealized gain on
available-for-sale securities included in accumulated other comprehensive income
was $582 at December 31, 1998 and $350 at December 31, 1997.
Gains and losses on sales of securities are generally computed on a
specific security basis.
Loans
Loans are stated at the principal amount less net deferred loan fees and
unearned discount. Interest income on commercial, consumer, and mortgage loans
is recorded on the outstanding balance method, using actual interest rates
applied to daily principal balances. Accrual of interest income on loans ceases
when collectibility of interest and/or principal is questionable. If it is
determined that the collection of interest previously accrued is uncertain, such
accrual is reversed and charged to current earnings. Thereafter, income is only
recognized as payments are received for loans on which there is no uncertainty
as to the collectibility of principal.
Loan Fees
Fees collected upon loan origination and certain direct costs of
originating loans are deferred and recognized over the contractual lives of the
related loans as yield adjustments. Upon prepayment or other disposition of the
underlying loans before their contractual maturities, any associated unamortized
fees or costs are recognized.
Derivative Financial Instruments
The Corporation uses interest-rate swap agreements to manage the
interest-rate characteristics of its floating-rate loan portfolio to a
fixed-rate basis.
Interest-rate differentials to be paid or received as a result of
interest-rate swap agreements are accrued and recognized as an adjustment of
interest income related to the designated floating-rate loans. Recorded amounts
related to interest-rate swaps are included in other assets or liabilities. The
fair values of interest-rate swap agreements are not recognized in the financial
statements.
Realized and unrealized gains or losses at the time of maturity,
termination, sale, or repayment of a derivative contract or designated item are
recorded in a manner consistent with the original designation of the derivative
in view of the nature of the termination, sale, or
17
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
repayment transaction. Amounts related to interest-rate swaps are deferred and
amortized as an adjustment to interest income over the original period of
interest exposure, provided the designated asset continues to exist or is
probable of occurring. Realized and unrealized changes in fair value or
derivatives designated with items that no longer exist or are no longer probable
of occurring are recorded as a component of the gain or loss arising from the
disposition of the designated item.
Reserve for Possible Loan Losses
The reserve for possible loan losses is based on management's evaluation of
the loan portfolio under current economic conditions and such other factors
which deserve recognition in estimating possible loan losses. This evaluation is
inherently subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. Additions to the reserve arise from
the provision for loan losses charged to operations or from the recovery of
amounts previously charged off. Loan charge-offs reduce the reserve. Loans are
charged off when there has been permanent impairment. Certain impaired loans are
reported at the present value of expected future cash flows using the loan's
initial effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent.
Premises and Equipment
Land is stated at cost, and bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on the straight-line
method and charged to operating expenses over the estimated useful lives of the
assets (bank premises and improvements - average life 25 years; furniture and
equipment - average life 10 years).
Other Real Estate Owned
Other real estate owned represents properties acquired through customers'
loan defaults, and is included in accrued interest and other assets. The real
estate is stated at an amount equal to the loan balance prior to foreclosure,
plus costs incurred for improvements to the property, but no more than the fair
market value of the property, less estimated costs to sell.
Stock Options
The Corporation grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Corporation has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123)
requires use of option valuation models in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. The effect of applying SFAS No. 123 to the
Corporation's stock-based awards results in net income and earnings per share
that are not materially different from amounts reported.
Dividend Reinvestment and Employee Stock Purchase Plans
The Univest Dividend Reinvestment Plan (the "Reinvestment Plan") and the
1996 Employee Stock Purchase Plan (the "Purchase Plan") each have 500,000 shares
of common stock available for issuance. Employees may elect to make
contributions to the Purchase Plan in an aggregate amount not less than 2% nor
more than 10% of such employee's total compensation. These contributions are
then used to purchase stock during an offering period determined by the
Corporation's Administrative Committee. The purchase price of the stock is
established by the Administrative Committee provided, however, that the purchase
price will not be less than 85% of the lesser of the market price on the first
day or last day of the offering period.
During 1998 and 1997, 32,160 and 36,134 shares, respectively, were issued
under the Reinvestment Plan, with 418,672 shares available for future purchase
as of December 31, 1998. During 1998 and 1997, 3,500 and 5,614 shares,
respectively, were issued under the Purchase Plan, with 488,284 shares available
for future purchase as of December 31, 1998.
Income Taxes
Deferred income taxes are provided on temporary differences between amounts
reported for financial statement and tax purposes in accordance with SFAS No.
109, "Accounting for Income Taxes."
18
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Intangible Assets
Intangible assets, net of accumulated amortization, include goodwill and
core deposit intangibles. Goodwill is being amortized on a straight-line basis
over a fifteen year period. Core deposit intangibles are being amortized over
their estimated useful lives ranging from seven to ten years. At December 31,
1998 the unamortized balance is approximately $3.4 million ($3.8 million at
December 31, 1997), net of accumulated amortization of approximately $2.6
million ($2.0 million at December 31, 1997.)
Retirement Plan
Substantially all employees are covered by a noncontributory retirement
plan. The plan provides benefits based on a formula of each participant's final
average pay. The amount funded is not more than the maximum amount deductible
for federal income tax purposes. In addition, Univest sponsors a 401(k) deferred
salary savings plan, which is a qualified defined contribution plan, and which
covers all employees of Univest and its subsidiaries, and provides that the
Corporation make matching contributions as defined by the plan.
Postretirement Benefits Other Than Pensions
The Corporation provides certain postretirement health care and life
insurance benefits for retired employees. The Corporation accrues the costs
associated with providing these benefits during the active service periods of
employees in accordance with Statement of Financial Accounting Standard No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
No. 106).
Statement of Cash Flows
Univest has defined those items included in the caption "Cash and due from
banks" as cash and cash equivalents.
Trust Assets
Assets held by Union in a fiduciary or agency capacity for its customers
are not included in the consolidated financial statements since such items are
not assets of Union. Trust service income is reported on a cash basis. Reporting
such income on a cash basis instead of the accrual basis does not materially
affect net income or financial position.
Stock Split
On January 28, 1998 the Corporation's board of directors declared a 100%
stock dividend in the form of a stock split paid on May 1, 1998, to shareholders
of record as of April 14, 1998. All share and per share amounts have been
retroactively adjusted to give effect to the stock split.
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. All earnings
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS No. 128 requirements.
As of January 1, 1998, the Corporation adopted Statement No. 130,
"Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components.
However, the adoption of this Statement had no impact on the Corporation's net
income or shareholders' equity. SFAS No. 130 requires unrealized gains or losses
on the Corporation's available-for-sale securities which prior to adoption were
reported separately in shareholders' equity, to be included in Other
Comprehensive Income. Prior year financial statements have been reclassified to
conform to the requirement of SFAS No. 130.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131). This
statement became effective in 1998, and had no impact on the Corporation's
financial statements because the Corporation is managed as one entity.
The FASB has recently issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS No. 132) which is
effective for financial statements issued for periods beginning after December
31, 1997. SFAS No. 132 does not change the recognition or measurement associated
with pension or postretirement plans. It standardizes certain disclosures,
requires additional information about changes in the benefit obligations and
about change in the fair value of plan assets to facilitate analysis, and it
eliminates certain disclosures that were not deemed useful.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), which is required to be
adopted in years beginning after June 15, 1999. The Statement will require the
Corporation to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the
19
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Corporation has not yet determined what
the effect of SFAS No. 133 will be on the earnings and financial position of the
Corporation.
The FASB has recently issued Statement No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" (SFAS No. 134) which is
effective for financial statements issued for the first fiscal quarter beginning
after December 15, 1998. SFAS No. 134 is not expected to have an impact on the
Corporation's financial statements since the Corporation presently does not
securitize mortgage loans.
Note 2. Restrictions on Cash and Due from Bank Accounts
Union is required to maintain reserve balances with the Federal Reserve
Bank. The average amount of those reserve balances for 1998 was $2.1 million and
for 1997 was $1.1 million.
Note 3. Investment Securities
Securities with a market value of $164.7 million and $161.6 million at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes as required by law. The following table shows the
amortized cost and approximate market value of the held-to-maturity securities
and available-for-sale securities at December 31, 1998 and 1997, by maturity
within each type:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Held-to-Maturity Securities Cost Gains Losses Value Cost Gains Losses Value
------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury, government
corporations and
agencies obligations:
Within 1 year .................. $ 61,575 $ 164 $ -- $ 61,739 $ 42,903 $ 28 $ (67) $ 42,864
1 to 5 years ................... 113,015 848 (190) 113,673 85,215 311 (83) 85,443
------------------------------------------- -----------------------------------------
174,590 1,012 (190) 175,412 128,118 339 (150) 128,307
------------------------------------------- -----------------------------------------
State and political subdivisions:
Within 1 year .................. 780 9 -- 789 980 2 -- 982
1 to 5 years ................... 15,092 176 (5) 15,263 3,696 43 -- 3,739
5 to 10 years .................. 2,094 19 -- 2,113 -- -- -- --
------------------------------------------- -----------------------------------------
17,966 204 (5) 18,165 4,676 45 -- 4,721
------------------------------------------- -----------------------------------------
Mortgage-backed securities:
Within 1 year .................. 437 4 -- 441 -- -- -- --
1 to 5 years ................... 3,536 22 -- 3,558 6,309 21 (8) 6,322
5 to 10 years .................. 5,476 36 -- 5,512 2,469 -- (18) 2,451
Over 10 years .................. 11,996 24 (17) 12,003 -- -- -- --
------------------------------------------- -----------------------------------------
21,445 86 (17) 21,514 8,778 21 (26) 8,773
------------------------------------------- -----------------------------------------
Other:
Within 1 year .................. 200 -- -- 200 -- -- -- --
1 to 5 years ................... 2,103 16 -- 2,119 200 -- -- 200
5 to 10 years .................. 100 5 -- 105 200 4 -- 204
------------------------------------------- -----------------------------------------
2,403 21 -- 2,424 400 4 -- 404
------------------------------------------- -----------------------------------------
Total ............................. $216,404 $1,323 $(212) $217,515 $141,972 $409 $(176) $142,205
=========================================== =========================================
</TABLE>
20
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Securities Available for Sale Cost Gains Losses Value Cost Gains Losses Value
------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury, government
corporations and
agencies obligations:
Within 1 year .................. $26,988 $164 -- $27,152 $25,963 $70 -- $26,033
1 to 5 years ................... 23,409 264 (121) 23,552 40,621 284 (8) 40,897
------------------------------------------- -----------------------------------------
50,397 428 (121) 50,704 66,584 354 (8) 66,930
------------------------------------------- -----------------------------------------
Mortgage-backed securities:
1 to 5 years ................... 1,637 3 -- 1,640 -- -- -- --
5 to 10 years .................. 12,902 210 (1) 13,111 8,919 77 (13) 8,983
Over 10 years .................. 37,661 381 (5) 38,037 36,106 216 (87) 36,235
------------------------------------------- -----------------------------------------
52,200 594 (6) 52,788 45,025 293 (100) 45,218
------------------------------------------- -----------------------------------------
Other:
Within 1 year .................. 3,527 -- -- 3,527 -- -- -- --
Over 10 years .................. 4,242 -- -- 4,242 4,045 -- -- 4,045
------------------------------------------- -----------------------------------------
7,769 -- -- 7,769 4,045 -- -- 4,045
------------------------------------------- -----------------------------------------
Total ............................. $110,366 $1,022 $(127) $111,261 $115,654 $647 $(108) $116,193
=========================================== =========================================
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
During the year ended December 31, 1998, available-for-sale debt securities
with a fair value at the date of sale of $25,079 were sold ($24,024 in 1997).
Gross realized gains on such sales totaled $97 during 1998 ($102 in 1997 and $12
in 1996), and the gross realized losses totaled $0 during 1998 ($7 in 1997 and
$21 in 1996). Net unrealized gains on available-for-sale securities included in
accumulated other comprehensive income as a separate component of shareholders'
equity totaled $582 in 1998 and $350 in 1997.
Unrealized losses in investment securities at December 31, 1998 and 1997 do
not represent permanent impairments.
At December 31, 1998 and 1997, there were no investments in any single
non-federal issuer representing more than 10% of shareholders' equity.
Note 4. Loans
The following is a summary of the major loan categories:
December 31,
1998 1997
------------------------------
Real estate--construction .............. $ 33,530 $ 30,951
Real estate--commercial ................ 169,402 189,251
Real estate--residential ............... 214,798 217,782
Commercial and industrial .............. 171,699 138,812
Loans to individuals ................... 64,306 53,500
All other .............................. 7,117 6,143
------------------------------
Total loans ............................ 660,852 636,439
Less: Unearned income .................. (403) (876)
------------------------------
$ 660,449 $ 635,563
==============================
21
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
At December 31, 1998, loans to directors and executive officers of Univest
and companies in which directors have an interest aggregated $9,806. These loans
have been made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with customers and did not involve more than
the normal risk of collectibility or present other unfavorable terms. The
summary of activity for the past year is as follows:
<TABLE>
<CAPTION>
Balance at Amounts Balance at
January 1, 1998 Additions Collected December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$9,825 $6,588 $6,607 $9,806
</TABLE>
Note 5. Reserve for Possible Loan Losses
A summary of the transactions in the reserve for possible loan losses is as
follows:
1998 1997 1996
-------------------------------------
Balance at beginning of year .......... $ 10,270 $ 9,801 $ 8,854
Provision charged to operating expenses 958 1,310 1,045
Recoveries ............................ 682 316 1,087
Loans charged off ..................... (1,372) (1,157) (1,185)
-------------------------------------
Balance at end of year ................ $ 10,538 $ 10,270 $ 9,801
=====================================
Under Statement of Financial Accounting Standard No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS No. 114), the reserve for possible
loan losses related to loans that are identified for evaluation in accordance
with SFAS No. 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of collateral for certain
collateral-dependent loans. Included in the total impaired loans is $1,310 ($652
at December 31, 1997) against which $627 ($204 at December 31, 1997) of the
reserve for possible loan losses is allocated. Statement No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures" (SFAS
No. 118) amended SFAS No. 114's income recognition policy and clarifies SFAS No.
114's disclosure requirements. At December 31, 1998, the recorded investment in
loans that are considered to be impaired under SFAS No. 114 was $2,715, all of
which were on a nonaccrual basis, ($1,197 at December 31, 1997). The average
recorded investment in impaired loans during the year ended December 31, 1998
was approximately $2,719 ($2,360 at December 31, 1997). For the year ended
December 31, 1998, the Corporation recognized $0 in interest income on those
impaired loans ($94 at December 31, 1997).
At December 31, 1998, the total of nonaccrual and restructured loans was
$2,839 ($2,066 at December 31, 1997). If these loans had been performing in
accordance with their contractual terms, additional interest income of $341,
$187, and $275 would have been recorded in 1998, 1997, and 1996, respectively.
In addition, Pennview had first residential mortgage loans of $710 at December
31, 1998 ($1,276 at December 31, 1997) which were over 90 days delinquent.
The total of the real estate owned at December 31, 1998 was $393 ($250 at
December 31, 1997). Other expenses for 1996 include costs of $225 associated
with the write-down of other real estate owned. No such costs were incurred for
the years ended December 31, 1998 or December 31, 1997.
Note 6. Premises and Equipment
December 31,
1998 1997
---------------------------
Land and land improvements ................. $ 3,339 $ 3,288
Premises and improvements .................. 16,215 16,016
Furniture and equipment .................... 15,384 17,210
---------------------------
34,938 36,514
Less: accumulated depreciation ............. (19,110) (19,910)
---------------------------
$ 15,828 $ 16,604
===========================
As of December 31, 1998, Univest and its subsidiaries were obligated under
noncancelable leases for various premises and equipment. A summary of the future
minimum rental commitments under noncancelable operating leases net of related
sublease revenue is as follows: 1999 - $448; 2000 - $383; 2001- $276; 2002 -
$130; 2003 - $96. Rental expense charged to operations was $525, $487, and $350
for 1998, 1997, and 1996 respectively.
22
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Note 7. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The assets and
liabilities giving rise to the Corporation's deferred tax assets and liabilities
as of December 31, 1998 and 1997 are as follows:
1998 1997
---------------------
Deferred tax assets:
Loan loss ................................... $3,611 $3,470
Deferred compensation ....................... 237 257
Postretirement benefits ..................... 427 413
---------------------
4,275 4,140
Deferred tax liabilities:
Accretion ................................... 199 284
Retirement plans ............................ 70 214
Depreciation ................................ 191 327
Intangible assets ........................... 312 325
Deferred Income ............................. 320 223
Mark-to-market adjustment ................... 161 73
Other ....................................... 628 473
---------------------
Net deferred tax assets .......................... $2,394 $2,221
=====================
The provision for federal and state income taxes included in the
accompanying consolidated statements of income consists of the following:
1998 1997 1996
----------------------------------------------
Current ............... $ 6,325 $ 6,149 $ 5,147
Deferred .............. (279) (162) (119)
----------------------------------------------
$ 6,046 $ 5,987 $ 5,028
==============================================
The effective tax rates are less than the statutory federal rate of 35%
because interest on loans and investment securities of state and political
subdivisions is exempt from income tax. Deferred federal income taxes (benefit)
arise from timing differences in the recognition of income and expenses for tax
and financial reporting purposes.
Note 8. Retirement Plan
1998 1997
------------------------
Change in benefit obligation
Benefit obligation at beginning of year ............ $ 12,706 $ 11,907
Service cost--benefits earned during the period .... 568 539
Interest cost on projected benefit obligation ...... 915 887
Actuarial (gain) loss .............................. 1,498 (47)
Benefits paid ...................................... (405) (580)
------------------------
Benefit obligation at end of year .................. 15,282 12,706
------------------------
23
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
1998 1997
------------------------
Change in plan assets
Fair value of plan assets at beginning of year ..... $ 15,084 $ 12,270
Actual return on plan assets ....................... 2,708 2,702
Employer contribution .............................. -- 692
Benefits paid ...................................... (405) (580)
------------------------
Fair value of plan assets at end of year ........... 17,387 15,084
------------------------
Funded status ...................................... 2,105 2,378
Unrecognized net actuarial gain .................... (549) (604)
Unrecognized prior service costs ................... (533) (609)
Unrecognized net transition asset .................. (252) (378)
------------------------
Prepaid pension expense ............................ $ 771 $ 787
========================
1998 1997
------------------------
Weighted-average assumptions as of December 31
Assumed discount rate for obligation ............... 6.30% 7.25%
Assumed long-term rate of investment return ........ 8.50% 8.50%
Assumed salary increase rate ....................... 5.10% 5.60%
Net pension expense recognized in 1998, 1997, and 1996 amounted to $15,
$165, and $360, respectively, and is summarized as follows:
1998 1997 1996
------------------------------
Service cost--benefits earned during the period $ 568 $ 539 $ 553
Interest cost on projected benefit obligation . 915 887 824
Expected return on plan assets ................ (1,266) (1,059) (934)
Amortization of net transition asset .......... (126) (126) (126)
Amortization of prior service cost ............ (76) (76) (76)
Amortization of actuarial loss ................ -- -- 119
------------------------------
$ 15 $ 165 $ 360
==============================
The unrecognized net asset at transition is being amortized on the
straight-line method over 15 years. Plan assets include marketable equity
securities, corporate and government debt securities, and certificates of
deposit.
Pension expense for the 401(k) deferred salary savings plan for the years
ended December 31, 1998, 1997, and 1996 was $263, $243, and $224, respectively.
Note 9. Other Postretirement Benefit Plans
The Corporation provides certain postretirement health care and life
insurance benefits for retired employees. Statement of Financial Accounting
Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (SFAS No. 106) establishes the accounting for postretirement benefits.
SFAS No. 106 requires that employers accrue the costs associated with providing
postretirement benefits during the active service periods of employees.
1998 1997
---------------------
Change in benefit obligation
Benefit obligation at beginning of year .............. $ 1,175 $ 1,081
Service cost--benefits earned during the period ...... 22 19
Interest cost on projected benefit obligation ........ 82 78
Actuarial loss ....................................... 171 47
Benefits paid ........................................ (50) (50)
---------------------
Benefit obligation at end of year .................... 1,400 1,175
---------------------
24
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
1998 1997
---------------------
Fair value of plan assets ............................ -- --
---------------------
Funded status ........................................ (1,400) (1,175)
Unrecognized net actuarial loss ...................... 306 137
---------------------
Accrued pension expense .............................. $(1,094) $(1,038)
=====================
Net periodic postretirement benefit cost for the years ended December 31,
1998, 1997, and 1996 includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
------------------
<S> <C> <C> <C>
Service cost--benefits earned during the period .............. $ 22 $ 19 $ 20
Interest cost on accumulated postretirement benefit obligation 82 78 73
Amortization of actuarial loss ............................... 1 -- 3
------------------
$105 $ 97 $ 96
==================
</TABLE>
1998 1997
-------------
Weighted-average assumptions as of December 31
Assumed discount rate for obligation ......................... 6.30% 7.00%
Medical care cost trend on covered charges* .................. 7.50% 8.00%
*For measurement purposes, the medical care cost trend rate on covered
charges is assumed to decrease gradually by 1/2 percent per year, reaching 5
percent in 2003 and after. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, a
one-percentage-point change in the assumed health care cost trend rates would
have the following effects:
One Percentage Point
--------------------
Increase Decrease
--------------------
Effect on total of service and interest cost components .... $ 6 $ (5)
Effect on postretirement benefit obligation ................ 80 (76)
Note 10. Long-Term Incentive Plan
The Corporation adopted the 1993 Long-Term Incentive Plan, whereby the
Corporation may grant options to employees to purchase up to 500,000 shares of
common stock. The plan provides for the issuance of options to purchase common
shares at prices not less than 100 percent of the fair market value at the date
of option grant. Options are exercisable as to 33 percent of the optioned shares
each year from the date of grant for a period not exceeding six years. 322,374
common shares were available for future options at December 31, 1998.
Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Option Price
Under Option Per Share
----------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 ............... 172,126 $13.60 - $15.50
Granted ........................................ -- --
Exercised ...................................... (8,034) 13.60
Outstanding at December 31, 1996 ............... 164,092 13.60 - 15.50
Granted ........................................ 5,500 30.00
Exercised ...................................... (4,334) 13.60
Outstanding at December 31, 1997 ............... 165,258 13.60 - 30.00
Granted ........................................ -- --
Exercised ...................................... (20,880) 13.60
Exercised ...................................... (23,993) 15.50
Outstanding at December 31, 1998 ............... 120,385 $13.60 - $30.00
</TABLE>
25
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Note 11. Time Deposits
The aggregate amount of certificates of deposit in denominations of $100 or
more was $21,669 at December 31, 1998, and $20,575 at December 31, 1997, with
interest expense of $1,307 for 1998, and $1,176 for 1997. Other time deposits in
denominations of $100 or more were $23,124 at December 31, 1998, and $34,594 at
December 31, 1997, with interest expense of $1,450 for 1998 and $2,139 for 1997.
Note 12. Long-Term Debt
At December 31, 1998 and 1997, long-term debt consisted of the following:
<TABLE>
<CAPTION>
Description December 31, December 31,
1998 1997 Interest Rate Maturity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank Advance $ 3,500 $ 3,500 4.78% (variable) May 2001
Federal Home Loan Bank Advance 3,500 3,500 4.74% (variable) March 2001
Federal Home Loan Bank Advance 75 75 4.00% September 2006
Federal Home Loan Bank Advance 2,000 2,000 5.52% (variable) September 2002
-------------------------
$ 9,075 $ 9,075
=========================
</TABLE>
Advances from the Federal Home Loan Bank are collateralized by Federal Home
Loan Bank stock and substantially all first mortgage loans of Pennview. The
advances are subject to the payment of a prepayment fee in the event of
repayment of the advance in whole or in part prior to maturity.
Note 13. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income 14,501 13,177 12,038
Numerator for basic and diluted earnings per
share - income available to common
shareholders 14,501 13,177 12,038
Denominator:
Denominator for basic earnings per share-
weighted-average shares outstanding 7,539 7,730 7,820
Effect of dilutive securities:
Employee stock options 54 45 15
Denominator for diluted earnings per share
adjusted weighted-average shares
outstanding 7,593 7,775 7,835
===================================================
Basic earnings per share $ 1.92 $ 1.70 $ 1.54
===================================================
Diluted earnings per share $ 1.91 $ 1.69 $ 1.54
===================================================
</TABLE>
For additional disclosures regarding the employee stock options, see Note 10.
26
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Note 14. Financial Instruments with Off-Balance-Sheet Risk and Commitments
Loan commitments are made to accommodate the financial needs of the Banks'
customers. Standby letters of credit commit the Banks to make payments on behalf
of customers when certain specified future events occur. They primarily are
issued to support commercial paper, medium- and long-term notes and debentures,
including industrial revenue obligations. Historically, substantially all
standby letters of credit expire unfunded. Both arrangements have credit risk
essentially the same as that involved in extending loans to customers and are
subject to the Banks' normal credit policies. Collateral is obtained based on
management's credit assessment of the customer.
The Banks offer commercial, mortgage, and consumer credit products to their
customers in the normal course of business which are detailed in Note 4. These
products represent a diversified credit portfolio and are generally issued to
borrowers within the Banks' branch office systems in eastern Pennsylvania. The
ability of the customers to repay their credit is, to some extent, dependent
upon the economy in the Banks' market areas.
The Banks also control their credit risks by limiting the amount of credit
to any business, institution, or individual, but as of December 31, 1998, the
Banks have identified the due from banks' balance as a significant concentration
of credit risk because it contains a balance due from a single depository
institution in the amount of $10,560 which is unsecured. Management evaluates
the creditworthiness of the institution on at least a quarterly basis in an
effort to monitor its credit risk associated with this concentration.
The following schedule summarizes the Corporation's off-balance-sheet financial
instruments:
Contract or
Notional Amount
---------------
Financial instruments representing credit risk:
Commitments to extend credit ............................ $208,952
Standby letters of credit or commercial letters of credit 18,371
Interest rate swaps, notional principal amount .......... 50,000
The Corporation may enter into interest-rate swaps in managing its
interest-rate risk. In these swaps, the Corporation agrees to exchange, at
specified intervals, the difference between fixed- and floating-interest amounts
calculated on an agreed-upon notional principal amount. Because the
Corporation's interest-earning assets tend to be short-term floating rate
instruments while the Corporation's interest-bearing liabilities tend to be
longer-term fixed rate instruments, interest-rate swaps in which the Corporation
pays a floating rate and receives a fixed rate are used to reduce the impact of
changes in interest rates on the Corporation's net interest income.
At December 31, 1998 and 1997, $50 million in notional interest-rate swaps
were outstanding. The contracts entered into by the Corporation expire as
follows: $20 million in notional principal amount in first quarter 1999, $10
million in third quarter 1999, $10 million first quarter and $10 million second
quarter 2000. The impact of the interest-rate swaps on net interest income for
the year ended December 31, 1998 was a positive $160 and for the year ended
December 31, 1997 a positive $74.
The Corporation's current credit exposure on swaps is limited to the value
of interest-rate swaps that have become favorable to the Corporation. As of
December 31, 1998, the market value of interest-rate swaps in a favorable value
position was $341. There were no interest-rate swaps with the market value in an
unfavorable position. At December 31, 1997, the market value of interest-rate
swaps in a favorable position was $119, while the market value of interest-rate
swaps in an unfavorable position totaled $4. Credit risk also exists when the
counterparty to a derivative contract with an unrealized gain fails to perform
according to the terms of the agreement.
Note 15. Fair Values of Financial Instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS No. 107), requires all entities to
disclose the estimated fair value of its financial instruments whether or not
recognized in the balance sheet. For Univest, as for most financial
institutions, substantially all of its assets and liabilities are considered
financial instruments as defined in SFAS No. 107. Many of the Corporation's
financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction. It is also the Corporation's general practice and intent to hold
its financial instruments to maturity and not to engage in trading or sales
activities other than residential mortgage loans held for sale and those
investment securities classified as available for sale. Significant estimations
and present value calculations, which are significantly affected by the
assumptions used, including the discount rate and estimate of future cash flows,
were used by the Corporation for the purposes of this disclosure.
27
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Estimated fair values have been determined by the Corporation using the
best available data, and an estimation methodology suitable for each category of
financial instruments. For those loans and deposits with floating interest
rates, it is presumed that estimated fair values generally approximate the
recorded book balances. Various methodologies are described in the accompanying
notes.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of
readily available active secondary market valuations for many of the financial
instruments. This lack of uniform valuation methodologies also introduces a
greater degree of subjectivity to these estimated fair values. Certain estimated
fair values cannot be substantiated by comparison to independent valuation
sources and, in many cases, might not be realized in immediate settlement of the
instrument.
The following table represents the estimates of fair value of financial
instruments:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------------------------------------------------
Carrying or Carrying or
Notional/Contract Fair Notional/Contract Fair
Amount Value Amount Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and short-term assets ........... $ 42,651 $ 42,651 $ 40,353 $ 40,353
Investment securities ................ 327,665 328,776 258,165 258,398
Net loans ............................ 649,911 676,903 625,293 626,069
Liabilities:
Deposits ............................. $ 874,504 $ 881,755 $ 792,868 $ 793,874
Short-term borrowings ................ 64,045 64,045 49,546 49,546
Long-term debt .......................... 9,075 8,995 9,075 9,075
Off-Balance-Sheet:
Commitments to extend credit ......... $ 208,952 (308) 163,011 (196)
Letters of credit .................... 18,371 (276) 22,366 (336)
Interest-rate swap, notional principal
amount ............................. 50,000 341 50,000 115
</TABLE>
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and due from banks and short-term investments: The carrying amounts
reported in the balance sheets for cash and due from banks, time deposits with
other banks, and federal funds sold and other short-term investments
approximates those assets' fair values.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices.
Loans: The fair values for loans are estimated using discounted cash flow
analyses, using a discount rate consisting of an appropriate risk free rate, as
well as components for credit risk, operating expense, and imbedded prepayment
options.
Deposit liabilities: The fair values for deposits with fixed maturities are
estimated by discounting the final maturity, and the fair values for
non-maturity deposits are established using a decay factor estimate of cash
flows based upon industry-accepted assumptions. The discount rate applied to
deposits consists of an appropriate risk free rate, and included components for
credit risk, operating expense, and imbedded prepayment options.
Short-term borrowings: The carrying amounts of securities sold under
repurchase agreements, and other short-term borrowings approximate their fair
values.
Long-term debt: The fair values of the Corporation's long-term borrowings
(other than deposits) are estimated using a discounted cash flow analysis using
a discount rate consisting of an appropriate risk free rate, as well as
components for credit risk, operating expense, and imbedded prepayment options.
Off-balance-sheet instruments: Fair values for the Corporation's
off-balance-sheet instruments are based on the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
28
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Note 16. Regulatory Matters
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks' capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the Office of
Comptroller of the Currency and Federal Deposit Insurance Corporation (FDIC)
categorized the Banks as well-capitalized under the regulatory framework for
prompt corrective action. To be categorized as well-capitalized, the Banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Banks' category.
The Banks' actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets):
Consolidated $ 108,097 13.44% $ 64,365 8.00% $ 80,457 10.00%
Union National Bank 88,313 12.45% 56,755 8.00% 70,944 10.00%
Pennview Savings Bank 14,955 17.07% 7,009 8.00% 8,762 10.00%
Tier I Capital (to Risk-Weighted Assets):
Consolidated 99,163 12.33% 32,183 4.00% 48,274 6.00%
Union National Bank 80,563 11.36% 28,378 4.00% 42,567 6.00%
Pennview Savings Bank 14,205 16.21% 3,505 4.00% 5,257 6.00%
Tier I Capital (to Average Assets):
Consolidated 99,163 9.79% 30,379 3.00% 40,505 4.00%
Union National Bank 80,563 9.26% 26,096 3.00% 34,795 4.00%
Pennview Savings Bank 14,205 10.28% 4,145 3.00% 5,526 4.00%
</TABLE>
29
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ---------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk-Weighted Assets):
Consolidated $ 109,541 15.2% $57,532 8.0% $71,916 10.0%
Union National Bank 87,883 14.0% 50,256 8.0% 62,820 10.0%
Pennview Savings Bank 15,292 18.4% 6,666 8.0% 8,332 10.0%
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 101,399 14.1% $28,766 4.0% $43,149 6.0%
Union National Bank 80,874 12.9% 25,128 4.0% 37,692 6.0%
Pennview Savings Bank 14,462 17.4% 3,333 4.0% 4,999 6.0%
Tier I Capital (to Average Assets):
Consolidated $ 101,399 10.9% $37,065 4.0% $46,331 5.0%
Union National Bank 80,874 10.3% 31,489 4.0% 39,362 5.0%
Pennview Savings Bank 14,462 10.7% 5,396 4.0% 6,746 5.0%
</TABLE>
Dividend and Other Restrictions
The approval of the Office of Comptroller of the Currency is required for a
national bank to pay dividends if the total of all dividends declared in any
calendar year exceeds the bank's net profits (as defined) for that year combined
with its retained net profits for the preceding two calendar years. Under this
formula, Union can declare dividends in 1999 without approval of the Office of
Comptroller of the Currency of approximately $7,162 plus an additional amount
equal to the Bank's net profits for 1999 up to the
date of any such dividend declaration.
The Federal Reserve Act requires that extension of credit by Union to
certain affiliates, including Univest (parent), be secured by readily marketable
securities, that extension of credit to any one affiliate be limited to 10% of
Union's capital and surplus as defined, and that extensions of credit to all
such affiliates be limited to 20% of Union's capital and surplus.
Note 17. Parent Company Financial Information
Condensed financial statements of Univest, parent company only, follow:
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------------
<S> <C> <C>
Assets:
Deposits with bank subsidiary ............................... $ 91 $ 556
Investments in U.S. Government obligations available for sale 1,000 --
Investments in U.S. Government obligations held to maturity . -- 1,000
Investments in subsidiaries, at equity in net assets:
Banks ..................................................... 98,782 99,482
Non-banks ................................................. 5,536 5,543
Other assets ................................................ 1,770 1,969
----------------------
Total assets ............................................ $107,179 $108,550
======================
Liabilities:
Dividends payable ........................................... $ 1,108 $ 961
Other liabilities ........................................... 2,894 2,985
----------------------
Total liabilities ....................................... 4,002 3,946
----------------------
Shareholders' equity ........................................... 103,177 104,604
----------------------
Total liabilities and shareholders' equity .............. $107,179 $108,550
======================
</TABLE>
30
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Dividends from banks ......................................... $ 16,029 $ 5,150 $ 4,723
Other income ................................................. 7,536 7,695 6,973
--------------------------------------
Total operating income .................................... 23,565 12,845 11,696
Operating expenses ........................................... 8,242 8,105 7,566
--------------------------------------
Income before income tax benefit and equity in
undistributed income of subsidiaries ...................... 15,323 4,740 4,130
Applicable income tax (benefit) .............................. (152) (57) (133)
--------------------------------------
Income before equity in undistributed income of subsidiaries . 15,475 4,797 4,263
Equity in undistributed (loss) income of subsidiaries:
Banks ..................................................... (932) 8,260 7,744
Non-banks ................................................. (42) 120 31
--------------------------------------
Net income ................................................... $ 14,501 $ 13,177 $ 12,038
======================================
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ................................................ $ 14,501 $ 13,177 $ 12,038
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income/loss of subsidiaries 974 (8,380) (7,775)
Increase in other assets .............................. (343) (135) (1,000)
Depreciation of premises and equipment ................ 542 498 392
(Decrease) increase in other liabilities .............. (91) (438) 1,098
--------------------------------------
Net cash provided by operating activities .......... 15,583 4,722 4,753
Cash flows from investing activities
Proceeds from maturities of securities held to maturity ... 1,000 2,638 1,999
Purchases of investment securities available for sale ..... (1,000) (1,000) (2,638)
Investment in non-bank subsidiaries ....................... (35) -- --
--------------------------------------
Net cash provided by (used in) investing activities . (35) 1,638 (639)
Cash flows from financing activities
Purchases of treasury stock ............................... (13,692) (3,380) (1,430)
Stock issued under dividend reinvestment and
employee stock purchase plans ........................... 1,204 856 249
Proceeds from exercise of stock options ................... 656 59 109
Repayment from subsidiary ................................. -- 275 --
Cash dividends ............................................ (4,181) (3,641) (3,087)
--------------------------------------
Net cash used in financing activities ............... (16,013) (5,831) (4,159)
--------------------------------------
Net increase (decrease) in deposits with bank subsidiary .. (465) 529 (45)
Deposits with bank subsidiary at beginning of year ........ 556 27 72
--------------------------------------
Deposits with bank subsidiary at end of year .............. $ 91 $ 556 $ 27
======================================
</TABLE>
During 1998, 1997, and 1996 the parent company made income tax payments of
$6,041, $5,975, and $5,100, respectively. No interest payments were made.
31
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
(dollars in thousands, except share data)
Note 18. Quarterly Data (Unaudited)
The unaudited results of operations for the quarters for the years ended
December 31, 1998 and 1997 were as follows:
1998 Quarterly Financial Data
<TABLE>
<CAPTION>
December 31 September 30 June 30 March 31
---------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income .................................................... $18,213 $18,460 $18,196 $17,591
Interest expense ................................................... 7,979 8,260 7,975 7,601
---------------------------------------------------------
Net interest income ........................................... 10,234 10,200 10,221 9,990
Provision for loan losses .......................................... 75 275 275 333
---------------------------------------------------------
Net interest income after provision for loan losses ........... 10,159 9,925 9,946 9,657
Other income ....................................................... 2,768 2,745 2,586 2,595
Other expenses ..................................................... 8,079 7,224 7,373 7,158
---------------------------------------------------------
Income before income taxes ......................................... 4,848 5,446 5,159 5,094
Applicable income taxes ............................................ 1,381 1,623 1,508 1,534
---------------------------------------------------------
Net income .................................................... $ 3,467 $ 3,823 $ 3,651 $ 3,560
=========================================================
Per share data:
Net income:
Basic ......................................................... $ .47 $ .51 $ .48 $ .46
=========================================================
Diluted ....................................................... $ .47 $ .50 $ .48 $ .46
=========================================================
Dividends per share ............................................. $ .15 $ .15 $ .15 $ .125
=========================================================
1997 Quarterly Financial Data
<CAPTION>
December 31 September 30 June 30 March 31
---------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income .................................................... $17,935 $17,492 $17,456 $16,657
Interest expense ................................................... 7,552 7,301 7,176 6,883
---------------------------------------------------------
Net interest income ........................................... 10,383 10,191 10,280 9,774
Provision for loan losses .......................................... 415 315 370 210
---------------------------------------------------------
Net interest income after provision for loan losses ........... 9,968 9,876 9,910 9,564
Other income ....................................................... 2,095 2,116 1,807 1,869
Other expenses ..................................................... 7,418 6,666 6,916 7,041
---------------------------------------------------------
Income before income taxes ......................................... 4,645 5,326 4,801 4,392
Applicable income taxes ............................................ 1,437 1,653 1,518 1,379
---------------------------------------------------------
Net income .................................................... $ 3,208 $ 3,673 $ 3,283 $ 3,013
=========================================================
Per share data:
Net income:
Basic ......................................................... $ .42 $ .47 $ .42 $ .39
=========================================================
Diluted ....................................................... $ .41 $ .47 $ .42 $ .39
=========================================================
Dividends per share ............................................. $ .125 $ .125 $ .115 $ .115
=========================================================
</TABLE>
The first three quarters of 1997 earnings per share amounts have been restated
to comply with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
32
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Report of Independent Auditors
Board of Directors and Shareholders
Univest Corporation of Pennsylvania
We have audited the accompanying consolidated balance sheets of
Univest Corporation of Pennsylvania as of December 31, 1998 and 1997, and
the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Univest Corporation of Pennsylvania at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 21, 1999
33
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Five -Year Performance Highlights
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Basic Earnings Per Share
(In Dollars)
Year Earnings
- --------------------------------------------------------------------------------
94 ................................................................ 1.29
95 ................................................................ 1.43
96 ................................................................ 1.54
97 ................................................................ 1.70
98 ................................................................ 1.92
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Average Deposits
(Millions of Dollars)
Year Deposits
- --------------------------------------------------------------------------------
94 ................................................................ 669.5
95 ................................................................ 695.8
96 ................................................................ 725.4
97 ................................................................ 755.0
98 ................................................................ 830.2
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Average Loans
(Millions of Dollars)
Year Loans
- --------------------------------------------------------------------------------
94 ................................................................ 583.6
95 ................................................................ 583.8
96 ................................................................ 594.8
97 ................................................................ 625.8
98 ................................................................ 645.7
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Net Income
(Millions of Dollars)
Year Net Income
- --------------------------------------------------------------------------------
94 ................................................................ 10.12
95 ................................................................ 11.23
96 ................................................................ 12.04
97 ................................................................ 13.18
98 ................................................................ 14.50
- --------------------------------------------------------------------------------
Selected Financial Data
<TABLE>
<CAPTION>
(In Thousands, except per share data)
Year ended December 31,
1998 1997 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets ............... $1,070,470 $ 973,157 $ 912,459 $ 881,888 $ 847,154
Long-term obligations ...... 9,075 9,075 7,075 4,085 9,438
Interest income ............ 72,460 69,540 66,682 63,545 55,921
Net interest income ........ 40,645 40,628 39,001 37,582 34,648
Provision for loan losses .. 958 1,310 1,045 1,895 1,950
Net income ................. 14,501 13,177 12,038 11,227 10,120
Net income per share:
Basic ................... $ 1.92 $ 1.70 $ 1.54 $ 1.43 $ 1.29
Diluted ................. $ 1.91 $ 1.69 $ 1.54 $ 1.43 $ 1.29
Dividends declared per share 0.575 0.48 0.355 0.355 0.30
</TABLE>
34
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Univest Corporation of Pennsylvania consolidated net income (in thousands)
and earnings per share for 1998, 1997, and 1996 were as follows:
1998 1997 1996
---------------------------------------------
Net income .................. $ 14,501 $ 13,177 $ 12,038
Net income per share:
Basic ................... 1.92 1.70 1.54
Diluted ................. 1.91 1.69 1.54
1998 versus 1997
The 1998 results compared to 1997 include the following significant pretax
components:
- Net interest income remained constant due to an increase in average
earning assets that was offset by a decrease in average yield and an
increase in interest-bearing liabilities with an increase in yield.
The net interest margin decreased to 4.3%.
- The provision for loan losses decreased $352 thousand or 26.9% due to
higher than expected net recoveries which caused a lower fourth
quarter provision.
- Total other income increased by $2.8 million or 35.4% due to earnings
from the purchase of Bank-Owned Life Insurance and increased fee
income.
- Salaries and benefits increased only $0.2 million or 1.3% aided by
outsourcing.
- Equipment expense increased $200 thousand or 8.0% primarily as a
result of software and equipment expenses needed for Y2K testing.
- Other expenses increased $1.3 million or 16.5% partly due to a
write-off for Pennview Savings Bank's Franconia office, and internal
audit fees, delivery service fees, marketing and advertising, and
intangible expenses.
1997 versus 1996
The 1997 results compared to 1996 include the following significant pretax
components:
- Net interest income rose $1.6 million or 4.1% due to a 4.7% increase
in average earning assets. The net interest margin remained constant
at 4.7%.
- The provisions for loan losses increased $265 thousand or 25.4% due to
higher net charge-offs during 1997.
- Other income increased by $1.0 million or 47.6% due to earnings from
the purchase of Bank-Owned Life Insurance, increased fee income, and a
gain on the sale of a closed branch office building.
- Salaries and benefits increased $1.0 million or 6.9% due to staff
additions directly tied to the opening of 4 new branch locations, and
normal salary increases.
- Net occupancy expense increased $105 thousand or 5.1% due to the
addition of several branch locations in 1997 and 1996.
- Other expenses decreased $270 thousand or 3.3% mainly due to a
one-time special assessment of $800 thousand paid by Pennview Savings
Bank in 1996 to recapitalize the Savings Association Insurance Fund,
and offset by increases in marketing, consulting, and ATM expenses
during 1997.
Net Interest Income
Net interest income is the difference between interest earned on loans,
investments and other interest-earning assets and interest paid on deposits and
other interest-bearing liabilities. Net interest income is the principal source
of the Corporation's revenues. The following table demonstrates a trend of
increasing amounts for 1996 through 1998. Sensitivities associated with the mix
of assets and liabilities are numerous and very complex, thus the Corporation
commits significant time to maximizing the net interest margin. The
Asset/Liability Management and Investment Committees, along with the Funds
Management Department, work to implement strategies with the intent and effort
to at least maintain or improve the net interest margin.
The investment portfolio is and has been primarily short-term in nature,
resulting in frequent repricing opportunities for Univest over the three (3)
year period analyzed in this report. It is important to again underscore the
complexities associated with asset/liability pricing noting the competition
within the marketplace that can dramatically impact the margin results. For this
reason, as we look to the future, it must be understood that an improving or
increasing net interest income is not certain.
35
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following table presents a summary of Univest's average balances, the
yields earned on average assets, the cost of average liabilities, and
shareholders' equity for the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- -----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investments $ 300,619 $17,897 6.0% $ 247,495 $15,217 6.1% $239,649 $14,698 6.1%
Loans 645,719 54,563 8.4% 625,849 54,323 8.7% 594,832 51,984 8.7%
----------------------------------------------------------------------------------------------------
Total interest-earning assets 946,338 72,460 7.7% 873,344 69,540 8.0% 834,481 66,682 8.0%
Noninterest-earning assets 69,830 55,893 55,376
---------- --------- --------
Total assets $1,016,168 $ 929,237 $889,857
========== ========= ========
Interest-bearing liabilities:
Deposits $ 698,104 29,415 4.2% $ 636,044 26,616 4.2% $617,383 25,574 4.1%
Borrowings 66,550 2,400 3.6% 61,266 2,296 3.7% 56,046 2,107 3.8%
----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 764,654 31,815 4.2% 697,310 28,912 4.1% 673,429 27,681 4.1%
Noninterest-bearing
liabilities 146,749 130,747 122,932
---------- --------- --------
Total liabilities 911,403 828,057 796,361
Shareholders' equity 104,765 101,180 93,496
---------- --------- --------
Total liabilities and
shareholders' equity $1,016,168 $ 929,237 $889,857
==========----------- =========----------- ========-----------
Net interest income $ 40,645 $40,628 $39,001
======== ======= =======
Interest-rate spread 3.5% 3.9% 3.9%
====== ====== ======
Net interest margin on
weighted average
interest-earning assets 4.3% 4.7% 4.7%
====== ====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities 123.8% 125.2% 123.9%
====== ====== ======
</TABLE>
Interest Income
Interest and fees on loans increased 0.6% or $0.3 million from the $54.3
million recorded for the year ended December 31, 1997 as compared to the $54.6
million for the year ended December 31, 1998. The increase due to increased
volume was offset by a decrease in rate. The prime rate decreased from the 8.50%
at January 1, 1998 to 8.25% in September, 8.00% in October and 7.75% in November
1998, reducing the average interest yield on the portfolio from 8.7% in 1997 to
8.4% 1998. Interest and fees on loans increased $2.3 million or 4.4% when
comparing the $54.3 million for 1997 to the $52.0 million for 1996. This
increase was due to increased volume. Although the prime rate increased from
8.25% at January 1, 1997 to 8.50% in March 1997, the average interest yield on
the portfolio remained constant at 8.7% for the year ended December 31, 1997.
Tax-free interest shows an increasing trend when comparing the $2.4 million
for December 31, 1998 with the $2.0 million recorded for December 31, 1997 and
the $1.9 million for December 31, 1996.
Interest on U.S. Government obligations decreased from $12.3 million for
the year ended December 31, 1997 to $11.6 million at December 31, 1998. The
decrease was due to decreases in both volume and rate. Interest on government
obligations decreased from $13.2 million for the year ended December 31, 1996 to
$12.3 million at December 31, 1997. The decrease was due to decreases in both
volume and rate.
Interest and dividends on state and political subdivisions shows an
increasing trend from $172 thousand in 1996 to $219 thousand in 1997 and $307
thousand in 1998. Volumes grew in each of the periods.
36
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The other securities category consists mainly of U.S. Government Agency
obligations. Income on other securities has grown from $1.1 million in 1996 to
$2.4 million in 1997 and $4.4 million in 1998. The increases were all due to
increased volume, especially in 1998 when average balances increased from $36.5
million for 1997 to $67.6 million for 1998.
Interest on federal funds sold is the resulting daily investment activity
that can be volatile in both rate and volume. Interest on federal funds sold
increased from $223 thousand in 1997 to $988 thousand in 1998 due to both
increased volume and rate. Included in this amount is $274 thousand of interest
on long term federal funds sold. Investment in long term federal funds sold was
for a five month period in the last half of the year. Income increased from $220
thousand in 1996 to $223 thousand in 1997 due to increased volume offset by
decreased yield.
Interest Expense
Interest expense on demand deposits increased 77.8% or $2.8 million from
$3.6 million in 1997 to $6.4 million in 1998. The growth was attributed to
volume and rate increases in certain types of money market accounts. Interest on
demand deposits increased 28.6% or $800 thousand from $2.8 million in 1996 to
$3.6 million in 1997. The increase was due to volume and rate.
Interest expense in savings deposits remained stable at $3.2 million when
comparing years ended December 31, 1998, 1997, and 1996.
Interest expense on time deposits remained a constant $19.8 million for the
years ended December 31, 1998 and 1997. Interest expense on time deposits
increased from $19.6 million in 1996 to $19.8 million in 1997, an increase of
$200 thousand. The increase was due to slightly higher average balances.
Interest expense - all other consists of interest paid on short-term
borrowings such as federal funds purchased, the corporate line of credit,
repurchase agreements and treasury tax and loan deposit. In addition, Union
National Bank offers an automated cash management checking account that sweeps
funds daily into a repurchase agreements account. Interest expense remained
constant at $1.9 million for 1998 and 1997 due to increasing volumes offset by
decreasing rates. Interest expense increased to $1.9 million in 1997 from $1.7
million in 1996. Increase was due to higher volumes and yields on short-term
purchased funds.
Long-Term Debt
Interest on long-term debt increased from $425 thousand at December 31,
1997 to $500 thousand at December 31, 1998. This increase represents a full year
of interest on the additional $2.0 million borrowed from the Federal Home Loan
Bank of Pittsburgh by Union late in 1997. Interest on long-term debt increased
from $358 thousand in 1996 to $425 thousand in 1997 due to an increase of $2.0
million in borrowings from the Federal Home Loan Bank of Pittsburgh by Union
during 1997.
Reserve For Possible Loan Losses
Management believes the reserve for possible loan losses is maintained at a
level which is adequate to absorb potential losses in the loan portfolio.
Management's methodology to determine the adequacy of and the provisions to the
reserve considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the volume, growth, and composition of the
loan portfolio.
The reserve for possible loan losses is determined through a periodic
evaluation which takes into consideration the growth of the loan portfolio, the
status of past-due loans, current economic conditions, various types of lending
activity, policies, real estate and other loan commitments, and significant
changes in the charge-off activity. Loans are also reviewed for impairment based
on discounted cash flows using the loans' initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans as provided
for under SFAS No. 114. Any of the above criteria may cause the provision to
fluctuate. The provision for loan losses for the year ended December 31, 1998
was $1.0 million as compared to $1.3 million for 1997 and $1.0 million for 1996.
Due to higher than expected recoveries in the fourth quarter of 1998, no
provision was made for Union. The ratio of the reserve for possible loan losses
to total loans at December 31, 1998 and 1997 was 1.6%.
At December 31, 1998, the recorded investment in loans that are considered
to be impaired under SFASNo. 114 was $2.7 million, all of which were on a
nonaccrual basis. The related reserve for possible loan losses for those loans
was $627 thousand. At December 31, 1997, the recorded investment in loans
considered to be impaired was $1.2 million and the related reserve for possible
loan losses for those loans was $204 thousand. Due to a changing economic
environment and increased competition on small businesses, the addition of
approximately nine accounts resulted in this 1998 increase.
37
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Generally, when a loan (including a loan impaired under SFAS No. 114) is
classified as nonaccrual, the accrual of interest on such a loan is
discontinued. A loan is classified as nonaccrual when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about the further collectibility of principal or interest, even though
the loan is currently performing. A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well-secured. When a
loan is placed on nonaccrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against "other expense." Interest received on nonaccrual loans generally is
either applied against principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms for a
reasonable period of time, and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. Total cash basis,
restructured and nonaccrual loans at December 31, 1998 total $3.5 million
(versus $3.3 million at December 31, 1997 and $5.0 million at December 31, 1996)
and consist mainly of real estate-related commercial loans. For the year ended
December 31, 1998, nonaccrual loans resulted in lost interest income of $341
thousand as compared to $187 thousand in 1997 and $275 thousand in 1996. In
management's evaluation of the loan portfolio risks, any significant future
increases in nonperforming loans are dependent to a large extent on the economic
environment, or specific industry problems. The Corporation's ratio of
nonperforming assets to total loans was .59% as of December 31, 1998 and .57% as
of December 31, 1997.
During the first quarter of 1998, the Office of Comptroller of the Currency
completed a safety and soundness examination at Union National Bank, the
Corporation's subsidiary commercial bank. The dollar value of identified
potential problem loans was not revised significantly as a result of the
examination. Examination procedures require individual judgments about the
borrower's ability to repay loans, sufficiency of collateral values, and the
effects of changing economic circumstances. The procedures are similar to those
employed by the Corporation in determining the adequacy of the allowance for
loan losses and in classifying loans. Judgments made by regulatory examiners may
differ from those made by management. Pennview Savings Bank was not examined
during 1998.
At December 31, 1998, the Corporation has $393 thousand of Other Real
Estate Owned ("OREO") consisting of three commercial properties and two
residential properties. This amount is recorded in "Other Assets" at the lower
of cost or fair market value in the accompanying consolidated balance sheets. At
December 31, 1997, the Corporation had $250 thousand in OREO. Included in other
operating expense in the consolidated statements of income for the year ended
December 31, 1996 were adjustments of $225 thousand, to the carrying value of
OREO, to approximate net realizable value. There were no such adjustments during
1997 or 1998.
Noninterest Income
Trust income continues to be a major source of noninterest income,
generating income for the year ended December 31, 1998 of $3.2 million which was
$500 thousand or 18.5% more than the $2.7 million reported for year ended
December 31, 1997 versus an increase of 17.4% or $400 thousand from 1996 to
1997. The increases are attributed to higher market values of assets under
management and growth in the number of trust accounts.
Service charges on demand deposits increased $1.1 million from $1.9 million
at December 31, 1997 to $3.0 million at December 31, 1998. The increase was due
mainly to increases in various transaction fees and deposit service fees.
Service charges for the year ended December 31, 1997 increased $100 thousand
from $1.8 million for the year ended December 31, 1996 to $1.9 million for the
year ended December 31, 1997.
Other income which is noninterest related consists mainly of general fee
income and other miscellaneous nonrecurring types of income. It also includes
various types of service charges, such as ATM fees and increases in the cash
surrender value of Bank-Owned Life Insurance (BOLI). Other noninterest income of
$4.1 million for 1998 is $1.0 million or 32.3% greater than the $3.1 million
earned in 1997. The increase is due to a $570 thousand increase in the net cash
surrender value of a $15.0 million Bank-Owned Life Insurance Policy and
approximately $400 thousand of increased fee income. The 1997 income of $3.1
million is 47.6% or $1.0 million greater than the $2.1 million shown for 1996.
The increase is attributed to a $300 thousand increase in the net cash surrender
value of a $15.0 million Bank-Owned Life Insurance Policy, a nonrecurring gain
on the sale of a closed branch office building, and a nonrecurring gain on the
sale of a piece of commercial real estate which was being held in OREO. These
gains, which totaled $230 thousand along with approximately $500 thousand of
increased fee income, further explains the increase.
Asset Sales
Sales of mortgage loans during the year ended December 31, 1998 resulted in
a pretax gain of $250 thousand as compared to a gain of $95 thousand for the
year ended December 31, 1997. The increase results from increased sales due to
decreasing long-term interest rates during 1998 which resulted in a large number
of refinances. The Corporation currently sells all long-term fixed-rate
38
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
conforming residential mortgage loans with terms in excess of twenty (20) years.
For the year ended December 31, 1997, sales of mortgage loans provided a pretax
gain of $95 thousand as compared to a gain of $43 thousand for the year ended
December 31, 1996. The increase results from decreasing long-term interest rates
during 1997.
During 1998, securities totaling approximately $25.0 million were sold from
the available-for-sale portfolio or matured, resulting in a net gain of $97
thousand. Treasury securities were sold to purchase agency securities and
therefore take advantage of the higher spreads between agency and treasuries in
the market. In 1997, securities totaling approximately $39.0 million were sold
from the available-for-sale portfolio at a net gain of $95 thousand. In 1996,
securities totaling approximately $11.0 million were sold from the
available-for-sale portfolio at a net loss of $9 thousand. Except for the $15.0
million of securities sold in 1997 to fund the purchase of Bank-Owned Life
Insurance, all other sales and maturities proceeds provided yield enhancement or
extended maturities. The total of debt and equity securities held in the
available-for-sale portfolio as of December 31, 1998 is $111.3 million versus
$116.2 million at December 31, 1997. The accumulated other comprehensive income
of $582 thousand, net of taxes, has been credited to shareholders' equity as of
December 31, 1998.
Noninterest Expense
The operating costs of the Corporation are known as other expenses, and
include, but are not limited to, salaries and benefits, equipment expense, and
occupancy costs. Expense control is very important to the management of the
Corporation, and every effort is made to contain and minimize the growth of
operating expenses, attempting to provide technological innovation whenever
practical, as operations change or expand. Salaries and benefits increased $0.2
million or 1.3% from $15.5 million in 1997 to $15.7 million in 1998. The small
increase is offset in part to outsourcing several departments including internal
audit and delivery services. Salaries and benefits also increased 6.9% or $1.0
million from $14.5 million in 1996 to $15.5 million in 1997. The increases were
due to normal salary and staff increases and the opening of four additional
offices during 1997.
Net occupancy expense remained constant at $2.2 million for the years ended
December 31, 1998 and 1997. Net occupancy increased 4.7% or $100 thousand from
$2.1 million for the year ended December 31, 1996 to $2.2 million for the year
ended December 31, 1997. The increases were due to the opening of four
additional offices in 1997 and three in 1996. Equipment expense increased $200
thousand or 8.0% from $2.5 million in 1997 to $2.7 million in 1998. Increased
software expense due to Year 2000 testing is the primary reason for the
increase. Equipment expense increased 4.2% from $2.4 million in 1996 to $2.5
million in 1997, an increase of $100 thousand. The increase in 1997 was due to
the four additional offices, while the 1996 increase was due to the new branches
plus new hardware and software for the conversion to a new computer system.
Other expenses of $9.2 million increased $1.3 million or 16.5% for the year
ended December 31, 1998 as compared to $7.9 million expense for 1997. This
increase was due to increases in several expense areas. The largest was a
write-off for Pennview Savings Bank's Franconia office. Audit fees and delivery
service fees increased $125 thousand and $140 thousand, respectively, due to
outsourcing. Increases in other expenses such as marketing and advertising, fees
expenses, and intangible expenses explain the remaining increases . Other
expenses of $7.9 million decreased $300 thousand or 3.7% for the year ended
December 31, 1997 as compared to $8.2 million expense for 1996. This decrease
was mainly due to the decrease of $800 thousand representing the one-time SAIF
special assessment paid by Pennview Savings Bank in 1996. This decrease was
offset by increases in other expenses such as marketing, consulting, and ATM
fees.
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The discussion regarding the Corporation's preparedness for Year 2000 as
discussed in the following section entitled "Year 2000" contains certain
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). These forward-looking statements involve risks and
uncertainties including changes in the Corporations' ability to execute its plan
to address the Year 2000 issue, and the ability of third parties to effectively
address their Year 2000 issues. The Corporation wishes to advise readers not to
place undue reliance on any such forward-looking statements which reflect
Management's analysis only as of the date hereof. Although the Corporation
believes that the expectations reflected in such forward-looking statements are
reasonable, actual results may differ materially from the results discussed in
these forward-looking statements.
Year 2000 Readiness Disclosures
The Year 2000 (Y2K) issue is the result of computer programs that were
written using two digits rather than four to define the applicable year. Any of
the Corporation's computer programs or hardware that have date sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather that the year 2000. This could result in a system failure or
miscalculations causing disruptions in operations, including, among other
things, a temporary inability to process transactions, or engage in normal
business activities.
39
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
A Year 2000 Committee was established in 1997 and formed a plan to resolve
the Y2K issues in the following four phases: assessments, remediation, testing,
and implementation. The Committee has inventoried software, identified hardware
and contracts with external vendors, and reviewed insurance issues.
The Corporation has fully completed the assessment phase related to Y2K
issues as it relates to the Corporation's hardware and software applications.
The Corporation's assessment indicated that most of the significant information
technology systems, particularly the general ledger and subsidiary applications
including loans, deposits, payroll and trust systems could be affected. All of
these software applications are licensed from vendors and run on hardware
operated by the Corporation. These vendors have represented that such
applications are Y2K compliant.
Testing of these software applications is fully completed with satisfactory
results, and programs remediated where necessary. Testing of the Corporation's
computer hardware is complete and determined to be Y2K compliant. Any changes to
software or any new software will be Y2K tested before the software is made
operational. The Corporation's contingency plans include self-remediation of
licensed software, manual workarounds, and the use of outsourcing alternatives
in the case of the payroll application. The assessment also indicated that
certain internally developed programs were affected by the Y2K issue. Such
programs have been remedied, tested and successfully implemented.
Additionally, the Corporation has completed the assessment of the potential
effects on the Corporation related to its commercial customers' preparedness for
Y2K. Specifically, the Corporation is subject to the risk of loss of customer
deposits and customers' inability to meet contracted loan obligations in the
event customers experience disruptions in their operations and experience loss
of business and liquidity problems. The results of this assessment enable the
Corporation to more closely monitor those higher risk customers so as to
promptly determine the possible effects on the Corporation's liquidity and loan
loss reserves. The inability of customers to complete their Y2K resolution
process in a timely manner could materially impact the Corporation.
In early 1999, the Corporation will conduct external testing with third
parties, including ATMs, major customers, other financial institutions and
payment systems providers. This testing is expected to be completed by June 30,
1999.
The total cost of the Y2K project cost is estimated at $400 thousand. To
date, the Corporation has incurred approximately $209 thousand, all of which has
been expensed. The remaining $191 thousand will be expensed as incurred.
Management believes it has an effective program in place to resolve the Y2K
issue in a timely manner. Failure to complete the project as herein described
may have a negative impact on our ability to effectively serve our customers. In
this event, the Corporation may experience the loss of customers, strain on
liquidity and a material negative effect on the results of operations.
Management of the Corporation believes that our readiness program will be
completed and if any need to rely on contingency plans arises, the impact will
not have a material financial impact on the Corporation. However, there can be
no guarantee that the estimates to complete the Y2K project or the contingency
plans will be achieved and actual results could differ from those anticipated.
Tax Provision
The provision for income taxes was $6.0 million for the year ended December
31, 1998 and $6.0 million for the year ended December 31, 1997 and $5.0 million
for the year ended December 31, 1996. The provision for income taxes for 1998,
1997, and 1996 was at effective rates of 29.4%, 31.2%, and 29.4%, respectively.
The effective tax rate for the year ended December 31, 1996 reflects the
recognition of $200 thousand of tax benefits for a tax refund received by
Pennview Savings Bank. In addition, the effective tax rate reflects the benefits
of tax credits generated from investments in low-income housing tax projects and
tax-free income from investment of securities, loans, and bank-owned life
insurance.
Financial Condition
During 1998, total assets increased to $1,070.5 million, an increase of
$97.3 million or 10.0% over the $973.2 million in 1997. Investment securities
increased $69.5 million to $327.7 million as compared to the $258.2 million at
December 31, 1997. Federal funds sold increased $10.7 million to $12.7 million
as compared to the $2.0 million at December 31, 1997. Total loans increased by
$24.8 million from $635.6 million at December 31, 1997 to $660.4 million at
December 31, 1998.
Total deposits grew from $792.9 million at December 31, 1997 to $874.5
million at December 31, 1998, an increase of $81.6 million. Deposit growth was
due mainly to increased activity in certain types of money market accounts
paying higher rates.
Shareholders' equity decreased $1.4 million or 1.3% to $103.2 million at
December 31, 1998 compared to $104.6 million at December 31, 1997. The main
reason was increased activity in treasury stock purchases which increased to
$14.6 million from $3.6 million at December 31, 1997. On November 26, 1997, the
Board of Directors approved the continuation of the Buyback Program for another
two years. This approval allows the Corporation to buy back up to 5% or
approximately 385,000 shares of its outstanding common stock in open market or
negotiated transactions. The net number of shares purchased since November 1997
is 293,413.
40
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<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Asset/Liability Management, Liquidity
The primary functions of Asset/Liability Management are to assure adequate
liquidity while maintaining an appropriate balance between interest-earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet cash flow requirements of customers. Interest-rate sensitivity
management seeks to avoid fluctuating net interest margins and to enhance
consistent growth of net interest income through periods of changing rates.
Univest uses both GAP and simulation techniques to quantify its exposure to
interest rate risk. The Company uses GAP techniques to identify and monitor long
term rate exposure and uses a simulation model to measure the short term rate
exposures. The Company runs various earnings simulation scenarios to quantify
the effect of declining or rising interest rates on the net interest margin over
a one year horizon. The simulation uses existing portfolio rate and repricing
information, combined with assumptions regarding future loan and deposit growth,
future spreads, prepayments on residential mortgages, and the discretionary
pricing of non-maturity assets and liabilities.
The Corporation is permitted to use interest-rate swap agreements which
convert a portion of its floating-rate commercial loans to a fixed-rate basis,
thus reducing the impact of interest changes on future income. In these swaps,
the Corporation agrees to exchange, at specified intervals, the difference
between fixed and floating-interest amounts calculated on an agreed-upon
notional principal amount. Because the Corporation's interest-earning assets
tend to be short-term floating rate instruments while the Corporation's
interest-bearing liabilities tend to be longer-term fixed rate instruments,
interest-rate swaps in which the Corporation pays a floating rate and receives a
fixed rate are used to reduce the impact of changes in interest rates on the
Corporation's net interest income.
At December 31, 1998 and December 31, 1997, $50.0 million in notional
interest-rate swaps were outstanding. The contracts entered into by the
Corporation expire as follows: $20.0 million in notional principal amount in
first quarter 1999, $10.0 million in notional principal amount in third quarter
1999, $10.0 million in first quarter 2000 and $10.0 million in second quarter
2000. The impact of the interest-rate swaps on net interest income for the year
ended December 31, 1998 was a positive $160 thousand and for the year ended
December 31, 1997 a positive $74 thousand.
The Corporation's current credit exposure on swaps is limited to the value
of interest-rate swaps that have become favorable to the Corporation. As of
December 31, 1998, the market value of interest-rate swaps in a favorable value
position was $341 thousand. There were no interest-rate swaps with the market
value in an unfavorable position. At December 31, 1997, the market value of
interest-rate swaps in a favorable position was $119 thousand, while the market
value of interest-rate swaps in an unfavorable position totaled $4 thousand.
Credit risk also exists when the counterparty to a derivative contract with an
unrealized gain fails to perform according to the terms of the agreement.
Capital Adequacy
Shareholders' equity at December 31, 1998 was $103.2 million or 9.6% of
total assets compared to shareholders' equity of $104.6 million or 10.8% as of
December 31, 1997. At December 31, 1998, shareholders' equity includes
accumulated other comprehensive income of $582 thousand related to the
unrealized security gains, net of taxes on investment securities available for
sale, while shareholders' equity at December 31, 1997 includes accumulated other
comprehensive income of $350 thousand.
Capital guidelines which banking regulators have adopted assign minimum
capital requirements for categories of assets depending on their assigned risks.
The components of risk-based capital are: Tier I, which is composed of total
shareholders' equity, excluding the adjustment for the unrealized securities
gains and losses, and also excluding any goodwill; and Tier II, which also
includes the applicable portion of the reserve for possible loan losses and
applicable adjustment for subordinated debt. Minimum acquired Tier II total
risk-based capital is 8.0%. Under the requirements, Univest has Tier I capital
ratios of 12.3% and 14.1 %, and total risk-based capital ratios of 13.4% and
15.2 % at December 31, 1998 and 1997, respectively. These ratios place Univest
in the "well-capitalized" category under regulatory standards.
Market Risk
When used or incorporated by reference in disclosure documents, the words
"anticipate," "estimate," "expect," "project," "target," "goal" and similar
expressions are intended to identify forward-looking statements within the
meaning of section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions,
including those set forth below. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected
or projected. These forward-looking statements speak only as of the date of the
41
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
document. The Corporation expressly disclaims any obligation or undertaking to
publicly release any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Corporation's expectations with
regard thereto to any change in events, conditions or circumstances on which any
such statement is based.
Market risk is the risk of loss from adverse changes in market prices and
rates. In the course of its lending and deposit taking activities, Univest is
subject to changes in the economic value and/or earnings potential of these
assets and liabilities due to changes in interest rates. Univest's
Asset/Liability Management Committee (ALMC) manages interest rate risk in a
manner so as to provide adequate and predictable earnings. This is accomplished
through the establishment of policy limits on maximum risk exposures, as well as
the regular and timely monitoring of reports designed to quantify risk and
return levels.
Univest uses both GAP and simulation techniques to quantify its exposure to
interest rate risk. The company uses GAP techniques to identify and monitor long
term rate exposure and uses a simulation model to measure the short term rate
exposures. The company runs various earnings simulation scenarios to quantify
the effect of declining or rising interest rates on the net interest margin over
a 1 year horizon. The simulation uses existing portfolio rate and repricing
information, combined with assumptions regarding future loan and deposit growth,
future spreads, prepayments on residential mortgages, and the discretionary
pricing of non-maturity assets and liabilities. The Corporation is permitted to
use interest-rate swaps and interest-rate caps/floors with indices that
correlate to on-balance sheet instruments, to modify its indicated net interest
sensitivity to levels deemed to be appropriate based on the Corporation's
current economic outlook. The effect of the interest rate swaps that the bank
uses to reduce its earnings volatility due to rate risk is also included in the
results of the simulation.
At December 31, 1998, the simulation, based upon forward-looking
assumptions, projects that Univest's greatest interest margin exposure to
interest-rate risk would occur if interest rates decline from present levels.
Given the assumptions, a 200 basis point parallel shift in the yield curve
applied on a ramp-down basis would cause Unvivest's interest margin, over a
1-year horizon, to be approximately 1% less than it would be if market rates
would remain unchanged. The simulation shows that, while the Interest Rate
Sensitivity Analysis below shows a liability sensitive position at 1 year, after
projected loan prepayments, varying degrees of rate sensitivity between assets
and liabilities classified as rate sensitive, and future loan and deposit growth
assumptions are factored in, Univest is slightly more susceptible to a 200 basis
point decrease in rates than to a 200 basis point increase in rates. Policy
limits have been established which allow a tolerance for no more than
approximately a 3.5% negative impact to the interest margin resulting from a 200
basis point parallel yield curve shift over a forward looking 12-month period.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations--"Net Interest Income" and " Asset/Liability Management, Liquidity"
and the table below:
Interest Sensitivity Analysis at December 31, 1998
<TABLE>
<CAPTION>
Within 1-5 Over
1 Year Years 5 Years
-------------------------------------
<S> <C> <C> <C>
Rate Sensitive Interest Earning Assets
Federal funds sold $12,700 $ -- $ --
Investment securities 140,586 185,223 5,796
Loans 363,794 248,614 48,041
Hedging Instruments (20,000) 20,000 --
-------------------------------------
497,080 453,837 53,837
Rate Sensitive Liabilities
Interest bearing deposits 454,639 267,556 215
Borrowed funds 71,045 2,000 75
Net non-int.-bearing funds (a) -- -- 209,224
-------------------------------------
525,684 269,556 209,514
Excess int.-earning assets (liabilities) (28,604) 184,281 (155,677)
Cumulative excess interest-earning assets (liabilities) $(28,604) $155,677 $ --
=====================================
</TABLE>
Notes to interest sensitivity analysis:
(a) Net non-interest bearing funds is the sum of non-interest bearing
liabilities and shareholder's equity minus non-interest earning assets.
42
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Supplementary Information
Range of Market Prices
The following table shows the range of market values of the Corporation's
stock. The Trust Department, Union National Bank and Trust Company, serves as
the Corporation's Stock Transfer Agent and Registrar and Dividend Disbursement
Agent pursuant to the trust powers of national banks. The prices shown on this
page represent transactions between dealers and do not include retail markups,
markdowns, or commissions.
High Low
------------------------------------
1998
January - March 35-1/2 29-3/4
April - June 37-1/4 34-1/8
July - September 37-1/2 34-1/8
October - December 35 33
High Low
------------------------------------
1997
January - March 20-1/8 17
April - June 21-1/2 19-1/2
July - September 24-3/4 20-3/4
October - December 30-3/4 24-1/4
Cash Dividends Paid Per Share
1998
January 2 $ 0.125
April 1 0.125
July 1 0.15
October 1 0.15
--------------
$ 0.55 for the year 1998
==============
1997
January 2 $ 0.115
April 1 0.115
July1 0.115
October 1 0.125
--------------
$ 0.47 for the year 1997
==============
43
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Supplementary Information (continued)
Description of Business
Univest Corporation of Pennsylvania is a multibank holding company with
banking and financial subsidiaries operating in eastern Pennsylvania and
Delaware.
Union National Bank and Trust Company of Souderton, Pennsylvania has 19
traditional offices and 7 supermarket branches offering all normal
commercial bank and trust services, and one work site office offering a
payroll check cashing service. Union National also provides banking and
trust services for the residents and employees of 10 retirement home
communities.
Pennview Savings Bank has 5 offices and emphasizes deposits from the
general public and residential mortgage loans. Pennview also provides
banking services at 2 retirement home communities. Delview, Inc., a wholly
owned subsidiary of Pennview, is a passive investment holding company
operating in Delaware.
Univest Leasing Corporation offers services of leasing commercial,
industrial, and institutional equipment to firms and individuals in the
same geographical area.
Univest Realty Corporation owns and manages real estate for all
subsidiaries of the holding company.
Univest Financial Planning Corporation provides various financial
management services to individuals and businesses within the holding
company's market area.
Univest Insurance Company, as a reinsurer, offers life and disability
insurance to individuals in connection with credit extended to them by the
bank.
Univest Electronic Services Corporation provides the data processing
operation and electronic development for all subsidiaries of the holding
company.
Univest Delaware, Inc. is a passive investment holding company operating in
Delaware.
Securities Market
Univest Corporation of Pennsylvania stock is traded over the counter and is
generally held by individuals residing within the market area of the Corporation
as stated under Description of Business. The number of shareholders as of
December 31, 1998 was 2,031.
Securities and Exchange Commission Reports
The Corporation will provide at no charge a copy of the SEC Form 10-K
annual report for the year 1998 to each shareholder who requests one in writing
after March 31, 1999. Requests should be directed to: Norman L. Keller,
Secretary, Univest Corporation of Pennsylvania, 14 N. Main Street, Souderton, PA
18964.
44
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Directors
James L. Bergey *o Merrill S. Moyer *oo
President, Chairman, Univest Corporation of
Abram W. Bergey & Sons, Inc. Pennsylvania; and Chairman,
Union National Bank & Trust Company
Clair W. Clemens *o
Director, Marvin A. Anders o #
Hatfield Quality Meats, Inc. Vice Chairman,
Univest Corporation of Pennsylvania;
R. Lee Delp * Vice Chairman,
President & Chief Executive Officer, Union National Bank & Trust Company
Moyer Packing Company
William S. Aichele o #
Charles H. Hoeflich *o President,
Chairman Emeritus, Univest Corporation of Pennsylvania;
Univest Corporation of Pennsylvania President and Chief Executive Officer,
Union National Bank & Trust Company
Thomas K. Leidy *o
Chairman & President, Norman L. Keller *o
Leidy's, Inc. Executive Vice President and
Corporate Secretary,
Harold M. Mininger *o Univest Corporation of Pennsylvania;
Retired, President & Chief Executive Officer,
H. Mininger & Son, Inc. Pennview Savings Bank
H. Ray Mininger # Laurence A. Moyer o
President, Executive Vice President & Secretary,
H. Mininger & Son, Inc. Pennview Savings Bank
William G. Morral o * Director of Univest Corporation of
Senior Vice President & Chief Pennsylvania
Financial Officer,
Moyer Packing Company o Director of Union National Bank &
Trust Company
Paul Gregory Shelly *o
President, o Director of Pennview Savings Bank
Shelly Enterprises, Inc.
# Alternate Director of Univest
John U. Young *o Corporation
President, of Pennsylvania
Alderfer Bologna Co., Inc.
45
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Officers
Univest Corporation of Pennsylvania
Senior Management
Merrill S. Moyer, Chairman
Marvin A. Anders, Vice Chairman,
Treasurer and Assistant Secretary
William S. Aichele, President
Norman L. Keller, Executive Vice President,
Mortgage Services, and Corporate Secretary
Wallace H. Bieler, Executive Vice President and
Chief Financial Officer, Finance and
Accounting
George D. Terry, Jr., Executive Vice
President, Electronic Services
Senior Vice Presidents
K. Leon Moyer, Credit Policy
Martin Renninger, Insurance Services
Richard R. Swartley, Electronic Services
Vice Presidents
Linda J. Bishop, Retail Services
Richard L. Boaman, Electronic Services
Duane J. Brobst, Credit Quality
Douglas R. Delp, Human Resources
T. Harry Hunter, Special Assets
Richard D. Juniper, Auditor
Diane L. Koehler, Compliance and
Community Reinvestment
John J. Matlack, Consumer Lending
William B. Meyer, Loan Review
Laurence A. Moyer, Residential Mortgage
Lending
Philip J. Rush, Finance and Accounting
Francis E. Varilla, Finance and Accounting
Mavis D. Woulfe, Deposit Operations
- --------------------------------------------------------------------------------
Union National Bank
& Trust Company
Senior Management
Merrill S. Moyer, Chairman
William S. Aichele, President and Chief
Executive Officer
Marvin A. Anders, Vice Chairman
Wallace H. Bieler, Executive Vice President
and Chief Financial Officer
George D. Terry Jr., Executive Vice President
Senior Vice Presidents
Murray Y. Alderfer, Trust Division
Ernest R. Klee, Private Banking
K. Leon Moyer, Corporate Banking Division
Ronald S. Price, Corporate Banking
Vice Presidents
Gary E. Brown, Private Banking
Kenneth D. Hochstetler, Commercial Banking
Patricia J. Kratz, Commercial Banking
John T. Landes, Commercial Banking
Timothy E. Mininger, Trust
Rose A. Radcliff, Real Estate and
Construction Finance
Stephen D. Robinson, Commercial Banking
Ricky R. Schneider, Commercial Banking
Barry L. Stoltzfus, Trust & Financial
Services Administration
Harry A. Wenzel, Commercial Banking
Gary S. Wolfer, Trust & Investment Services
Fern M. Zepp, Trust
- --------------------------------------------------------------------------------
Pennview Savings Bank
Senior Management
Norman L. Keller, President and Chief
Executive Officer
Laurence A. Moyer, Executive Vice President
and Secretary
Francis E. Varilla, Senior Vice President,
Chief Financial Officer and Treasurer
Vice Presidents
John J. Matlack, Consumer Lending
- --------------------------------------------------------------------------------
Other Principal Subsidiaries
of Univest Corporation of Pennsylvania
Univest Realty Corporation
Univest Leasing Corporation
Univest Electronic Services Corporation
Univest Financial Planning Corporation
Univest Insurance Company
Univest Delaware Inc.
46
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Office Locations
Union National Bank & Trust Company
<TABLE>
<S> <C> <C>
Univest Plaza Office Kulpsville Office Ralph's Corner
Trust and Funds Management Division, Sumneytown Pike West Main Street & Forty Foot Road
Corporate Banking, Private Banking, Kulpsville, Pennsylvania 19443 Lansdale, PA 19446
Consumer Loan Department 215-368-1666 215-393-5677
14 North Main Street
Souderton, Pennsylvania 18964 Lansdale Area Office Schwenksville Office
215-721-2400 2333 West Main Street, Suite 12 415 Main Street
Lansdale, Pennsylvania 19446 Schwenksville, Pennsylvania 19473
Buckingham Office 215-362-8835 610-287-7811
Hunt Acres Center
5006 York Road Lansdale East Office Sellersville Office
Holicong, PA 18928 620 East Main Street 835 Lawn Avenue
215-794-5916 Lansdale, Pennsylvania 19446 Sellersville, Pennsylvania 18960
215-412-9750 215-257-8060
Center Point Office
2960 Skippack Pike Line Lexington Office Solebury Office
Worcester, Pennsylvania 19490 990 Bethlehem Pike Logan Square Shopping Center
610-584-8450 Line Lexington, Pennsylvania 18932 6542D York Road
215-822-3314 New Hope, PA 18938
Center Square Office 215-862-3750
Clover Mall Milford Office
1301 Skippack Pike Route 663 & Weiss Road Souderton Office
Center Square, Pennsylvania 19422 Milford Square, Pennsylvania 18935 10 West Broad Street
610-279-3901 215-536-4204 Souderton, Pennsylvania 18964
215-721-2400
East Greenville Office Montgomery Office
321 Main Street 986 Bethlehem Pike Telford Office
East Greenville, PA 18041 Montgomeryville, Pennsylvania 18936 50 Penn Avenue
215-679-7928 215-699-3525 Telford, Pennsylvania 18969
215-723-4515
Franconia Office New Britain Office
503 Harleysville Pike 202 Town Center Telford Supermarket Office
Franconia, Pennsylvania 18924 New Britain, Pennsylvania 18901 Inside Landis Market
215-721-0707 215-345-8259 2685 County Line Road
Telford, PA 18969
Green Lane Office Perkasie Office 215-721-7412
101 Walnut Street 545 Constitution Avenue
Green Lane, Pennsylvania 18054 Perkasie, Pennsylvania 18944 Trappe Office
215-234-4511 215-257-6607 595 West MainStreet
Trappe, Pennsylvania 19426
Harleysville Office Plumsteadville Office 610-454-0883
Clemens Market 5859 Easton Road
611 Main Street Plumsteadville, Pennsylvania 18949
Harleysville, PA 19438 215-766-3701
215-256-8048
Quakertown Office
Hilltown Office Quakertown Shopping Plaza
786 Route 113 Routes 313 & 309
Souderton, Pennsylvania 18964 Quakertown, Pennsylvania 18951
215-721-2471 215-538-3407
</TABLE>
- --------------------------------------------------------------------------------
Pennview Savings Bank
<TABLE>
<S> <C> <C>
Franconia Office Montgomeryville Office Executive Offices & Souderton Office
503 Harleysville Pike 706 North Wales Road 15 Washington Avenue
Franconia, Pennsylvania 18924 Montgomeryville, Pennsylvania 18936 Souderton, Pennsylvania 18964
215-721-0707 215-362-5130 215-721-2597
Hatfield Office Silverdale Office
115 East Broad Street 103 Baringer Avenue
Hatfield, Pennsylvania 19440 Silverdale, Pennsylvania 18962
215-855-4646 215-257-9600
</TABLE>
47
--
<PAGE>
Univest Corporation
of Pennsylvania
- --------------------------------------------------------------------------------
Information For Shareholders
Corporate Headquarters
Univest Plaza
14 North Main Street
Souderton, PA 18964
Shareholders' Meeting
The Annual Shareholders' Meeting will take place
at 10:45 a.m., Tuesday, April 6, 1999, in the Board Room
at Univest Plaza, Broad and Main Streets, Souderton,
Pennsylvania.
Market Makers for Univest Corporation
of Pennsylvania Common Stock
Legg Mason Wood Walker, Inc.
1-800-221-8496
Ryan, Beck & Co.
1-800-223-8969
F.J. Morrissey & Co., Inc.
1-800-842-8928
Univest Shareholder Information Hotline
For more information on Univest Corporation of
Pennsylvania Common Stock, please call Marvin A. Anders,
Vice Chairman, at (215)721-2434.
Univest Grand Prix Photography
by Lowell Swartley
48
--
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
EXHIBIT
[Item 14(c)]
Subsidiaries
------------
(1) Union National Bank and Trust Company is chartered in the Commonwealth of
Pennsylvania.
(2) Pennview Savings Bank is chartered in the Commonwealth of Pennsylvania.
(3) Univest Leasing Corporation is chartered in the Commonwealth of
Pennsylvania.
(4) Univest Realty Corporation is chartered in the Commonwealth of
Pennsylvania.
(5) Univest Delaware, Inc. is chartered in the State of Delaware.
(6) Univest Financial Planning Company is chartered in the Commonwealth of
Pennsylvania.
(7) Univest Insurance Company is chartered in the State of Arizona.
(8) Univest Electronic Services Corporation is chartered in the Commonwealth of
Pennsylvania.
(9) Delview, Inc. is a wholly owned subsidiary of Pennview Savings Bank that is
chartered in the State of Delaware.
All the subsidiaries do business under the above names.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-02513) pertaining to the Univest 1996 Employee Stock Purchase Plan
of Univest Corporation of Pennsylvania and in the related Prospectus, in the
Registration Statement (Form S-8 No. 333-24987) pertaining to the Univest
Corporation of Pennsylvania 1993 Long Term Incentive Plan and in the related
Prospectus, and in the Registration Statement (Form S-3 No. 333-02509)
pertaining to the Univest Dividend Reinvestment and Stock Purchase Plan of
Univest Corporation of Pennsylvania of our report dated January 21, 1999, with
respect to the consolidated financial statements of Univest Corporation of
Pennsylvania included in this Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,011
<INT-BEARING-DEPOSITS> 3,940
<FED-FUNDS-SOLD> 12,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,261
<INVESTMENTS-CARRYING> 216,404
<INVESTMENTS-MARKET> 217,515
<LOANS> 660,449
<ALLOWANCE> 10,538
<TOTAL-ASSETS> 1,070,470
<DEPOSITS> 874,504
<SHORT-TERM> 64,045
<LIABILITIES-OTHER> 19,669
<LONG-TERM> 9,075
39,272
0
<COMMON> 0
<OTHER-SE> 63,905
<TOTAL-LIABILITIES-AND-EQUITY> 1,070,470
<INTEREST-LOAN> 54,563
<INTEREST-INVEST> 16,283
<INTEREST-OTHER> 1,614
<INTEREST-TOTAL> 72,460
<INTEREST-DEPOSIT> 29,415
<INTEREST-EXPENSE> 31,815
<INTEREST-INCOME-NET> 40,645
<LOAN-LOSSES> 958
<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 29,834
<INCOME-PRETAX> 20,547
<INCOME-PRE-EXTRAORDINARY> 20,547
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,501
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.91
<YIELD-ACTUAL> 4.3
<LOANS-NON> 3,424
<LOANS-PAST> 923
<LOANS-TROUBLED> 125
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,270
<CHARGE-OFFS> 1,372
<RECOVERIES> 682
<ALLOWANCE-CLOSE> 10,538
<ALLOWANCE-DOMESTIC> 10,538
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,545
</TABLE>
